Vickers Commission

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The Independent Commission on Banking (also known as the "Vickers Commission") is a five-member panel appointed by the U.K. government in 2010. [1] The commission, which is chaired by former Chief Economist of the Bank of England Sir John Vickers, issued its final report and recommendations on September 12, 2011.[2]

Summary

The ICB recommends that banks "ringfence," or separate retail banking operations from trading and investment banking activities. Ringfenced operations would be required to have a separate board of directors, and a 10 percent equity capital reserve. Among the goals and recommendations in the 363-page report:

  • the emergence of a competitor to the "Big Four" British banks;
  • a "firewall" between a bank's retail and investment banking operations, with stricter capital reserve requirements than those of Basel III;
  • elimination of the implicit guarantee that taxpayers will bail out failed banks, which tended to "unduly encourage risk-taking by banks; and
  • regulations to improve competition and choice "to the benefit of consumers."[3]

By 2019, the commission recommends total loss-absorbency at a banking institution should be between 17-20 percent.

In June 2012, the U.K. Treasury, under the direction of Chancellor of the Exchequer George Osborne, submitted a white paper highlighting its recommendations on banking reform. These recommendations soften key recommendations of the Vickers Commission. [4] In the white paper, the Treasury recommends dial back the capital buffer for large banks from 4.06 percent to three percent, in line with Basel III. Also, Treasury would allow the consumer units of banks operating in the U.K. to hedge currencies and some simple derivatives for small and mid-sized companies, another departure from Vickers' recommendations, which would have "ringfenced" such operations. Finally, Osbourne's recommendations would exempt smaller banks and banks with operations outside the U.K. that do not pose systemic risks from higher loss-absorbency ratios. To view a complete summary of the Treasury white paper, click HERE.

Related Documents: Vickers Commission Final Report, September, 2011; U.K. Treasury White Paper, June 2012

References

  1. UK Independent Commission on Banking Publishes Final Report. Clifford Chance. Retrieved on September 22, 2011.
  2. Vickers plan shakes up City. Financial Times. Retrieved on September 22, 2011.
  3. What the Vickers commission report will mean for banks – and the wider economy. The Scotsman. Retrieved on September 22, 2011.
  4. U.K. Softens Vickers’ Bank Proposals, Prompting Criticism. Bloomberg Businessweek. Retrieved on June 18, 20121.

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