What now?

The Independent Commission on Banking (ICB) recommendations have been largely accepted by the Government. This is seen by many to be a bold reform package which requires radical strategic, commercial and operational changes at banks.

The Treasury issued a White Paper on Banking Reform on 14th June 2012, as a follow-up to the Government’s initial response to the ICB Recommendations. In it, reforms focus on three key pillars:

  • Implementation of a retail ring-fence, with prohibited services being outside of this (e.g. proprietary trading).
  • Greater loss-absorbency for ring-fenced banks – maintaining a minimum common equity capital ratio of 10%. In total, theWhite Paper recommends that UK head-quartered globally systemically important banks have a primary loss - absorbing capacity (PLAC) of at least 17% of RiskWeighted Assets (RWAs).
  • Recommendations to improve competition in the sector – focusing on removing barriers to switching, increasing transparency and promoting a more competitive market structure.

The objective is to provide stability and resilience in the banking sector, ensure there are appropriate frameworks supporting bank resolutions if they go bust and remove implicit government guarantees.

The government and regulators have a big challenge to get a clear, concise and workable set of laws and guidance in place. The banks themselves face the massive task of implementing and complying.