The cost impact of the changes will mainly be the result of higher funding charges for the banks’ operations that are left outside the more highly-capitalised ring-fenced entity.
In the eyes of investors, operations outside the ring-fence will lose the benefit both of a government guarantee and of a broad bank’s current diversification.
The central recommendation of the Independent commission on banking, chaired by Sir John Vickers, was that banks’ retail operations, including consumer deposits and small business lending, must be ring-fenced from their “casino” investment arms.
The ICB will however not dictate where each institution must place the ring-fence, instead allowing lenders and their customers a degree of choice.
The flexibility is likely to be welcomed by the country’s big global banks, Barclays, Royal Bank of Scotland and HSBC, which had feared their operations would be divided along arbitrary lines.
Peter Vicary-Smith, chief executive of Which? said: “More banks competing for market share is the best way to make banks work harder for their customers and prevent them from simply passing on the cost of cleaning up their act to hard-pressed people and small businesses.
“Consumers are thoroughly sick of being asked to foot the bill for banking reform, it is the investment banks that have caused the crisis who should pay to put things right.”
