£7bn a year, the cost of ringfencing for UK banks

britain’S banks will have to pay up to £7 billion a year to fund the ringfencing of their retail arms from racier investment banking under some of the world’s toughest financial regulation unveiled yesterday.

The Independent Commission on Banking (ICB) in its final report stuck to its guns on recommending the government legislate for firewalls to be created between high street and “casino” banking.

The banking industry and wider business world were cautious in their public response, but banks were seen as highly relieved that they have been given eight years – until 2019 – to implement any recommendations.

Such a lengthy timeframe was seen as recognising the fragility of the UK recovery, and was defended by Sir John Vickers, chairman of the ICB, which has been deliberating for 15 months.

Vickers said: “This may seem a long time. It is. But short‑termism got us into this mess and we need long‑termism to build a more stable future.”

Miles Templeman, director‑general of the Institute of Directors, called the delay in implementation of the changes recommended by the commission “sensible”.

A core recommendation is for ringfenced retail operations – including personal and small business loans and mortgages – to hold core capital of at least 10 per cent of risk‑weighted assets. That outstrips the 7 per cent minimum recommended by global banking regulators.

Templeman said: “Monetary growth over the coming years is likely to be very weak and so early implementation of tighter rules would not be helpful.”

The Investment Management Association, the trade body for the UK’s £4 trillion asset management industry, welcomed ringfencing. “This is a thoughtful policy approach for protecting taxpayers from the potential damage of another banking blow‑up,” it said.

However, the CBI was more cautious. Neil Bentley, the deputy director‑general, said: “The UK is going it alone on ringfencing, so the government must rigorously examine how and when to implement these proposals, otherwise it risks damaging business and threatening growth.”

Critics of the ICB’s final proposals, which mirrored its interim report last spring apart from a softening of its stance on Lloyds branch sell-offs to stimulate high street competition, said the changes could lead to higher borrowing costs for small businesses. One said: “If the banking’s industry’s cost of lending rises, they could compensate by pushing up the cost of small business lending.”

The ICB said it believed the changes would cost Britain’s banks between £4bn and £7bn. Barclays and Royal Bank of Scotland are expected to be hit hardest because they have the largest investment banking units.

The British Bankers Association said the government needed to analyse the proposed reforms before final decisions were made on the recommendations in yesterday’s 358-page report.

“It is vital that the full impact any further reforms will have on the economy, the recovery and the banks’ ability to support their customers in the UK is understood,” the BBA said.

However, Vickers said if the reforms were adopted it would sharply reduce the risk of future banking collapses needing taxpayer bail-outs.