Banking reform must go deeper, says think tank
NIESR argues the case for full separation between retail and wholesale banking
By CFOWorld.co.uk | CFO UK | Published 13:46, 03 November 11
There is a “strong case” for full separation of banks’ retail and wholesale divisions, a step too far in a recent government review, according to an influential think tank.
The banking industry needs deeper reforms than the ones already laid out by the government-appointed Independent Commission on Banking (ICB), the National Institute of Economic & Social Research (NIESR) think-tank said on Thursday.
"Deeper and more fundamental reforms of the governance of banking and funding markets are required," NIESR director Dr Angus Armstrong said in a research paper.
"There is a strong case for full separation between retail and wholesale banking. Full separation, rather than just ring-fencing as proposed by the ICB, would have a better chance of addressing the severe corporate governance issues in banks," he added.
In September, the ICB published its final report on reforms for Britain's banking industry, which is dominated by the "Big Four" of Barclays, HSBC and part-nationalised lenders Lloyds and Royal Bank of Scotland.
The ICB said banks should form separate subsidiaries for their retail and investment activities under the same parent holding company, and establish a ring-fence to limit the extent to which a bank can use money in its retail arm to prop up its investment bank.
The ICB also called on UK banks to store up billions of pounds in extra capital, but gave them until 2019 to implement the new regime.
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