Treasury plans to scrutinise banking proposals

Tyrie said: "The Treasury Select Committee will look closely at these proposals when the draft Bill is published.

"Sitting alongside the Financial Services Bill, these reforms will define the shape of the UK's leading global industry.

"We have already taken a good deal of evidence on the two Vickers reports.

"Imposing a ring-fence between retail and investment banking may, in principle, be an appropriate way to increase financial stability and to safeguard the interests of taxpayers. Parliament will want to know if the ring-fence is workable, but the devil will be in the detail.

"Parliament and the public will need to know the impact of this regulation on the cost of credit for business and, in particular, smaller firms, who are most dependent on bank finance.

"Finding ways to increase competition in retail banking and to increase the overall resilience of the financial system are among the other areas of concern that need to be addressed. We will also consider the impact of EU legislation on the Government's ability to implement its proposals."

Key questions the Committee may ask about include:

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• Will the proposals eliminate the implicit subsidy to banks?

• To what extent will the Government's proposals increase the cost of credit for business and, in particular, smaller firms who are most dependent on bank finance?

• What are the consequences for the competitiveness of the UK's global financial industry? Will structural reforms lead to the exit of banks or attract them?

• Does the Government's design of the ring-fence give banks sufficient flexibility whilst not being so porous that it can be gamed?

• Can a regulatory structure be sufficiently responsive to adjust the ring-fence, and its definitions, to take account of the innovation of the industry over time?

• Will European legislation restrict the UK's ability to implement the financial stability proposals outlined in the White paper?

• What impact will the Government's financial stability proposals have on competition and, in particular, will they act to encourage or discourage new entrants to enter the sector and grow?

• Are the retail banking competition recommendations sufficient? If not, do we need to look afresh at structural solutions?