Retail split may cost banks up to £10 billion

THE bill for ring‑fencing banks’ high street business from their investment banking arms is expected to be put at between £2 billion and £10bn when the Independent Commission on Banking (ICB) unveils its final report this morning .

It comes as weekend reports suggested Chancellor George Osborne will give a warm welcome to the commission’s suggestions.

A Treasury official said: “The Chancellor read the ICB report over the weekend while attending the G7 summit in Marseilles. He thinks it’s a very good report and regards it as an important step in reforming our banks, so that we don’t repeat the terrible mistakes of the last few years.”

The creation of such firewalls is seen as a cornerstone of the report and was recommended by ICB chairman Sir John Vickers and his colleagues when they published their interim proposals last spring.

The separation of the businesses, with separate capital cushions, is meant to prevent any recurrence of the taxpayer bailouts of banks such as Royal Bank of Scotland at the height of the last financial crisis in 2008.

It is believed the ICB has stood firm against a lobbying campaign against such ring‑fencing led by Barclays and RBS in Britain, which have said it will increase the cost of their funding for investment banking if they cannot rely on retail deposits.

City analysts estimate the annual cost of ring‑fencing and the commission’s other proposals for the industry at £2bn to £10bn.However, many believe Osborne will soften the blow to the banks by not including recommended changes in the Financial Services Bill now before parliament.

The Chancellor is expected to delay implementation of any changes to 2015 at least, citing the danger of constricting bank lending when the UK economy is so fragile.

l Virgin Money played down reports at the weekend that it was set to re-enter the bidding for 632 branches of Lloyds Banking Group after winning backing from investors in Abu Dhabi. Sir Richard Branson’s bank declined to make a formal bid in July. Lloyds has offered to sweeten the deal by increasing the deposit base by £5bn over two years.