UK banking panel gives a capital call

The Independent Commission on Banking recommended the UK’s biggest banks should hold core Tier-I capital levels of about 10%, implement plans for an orderly bankruptcy and ring-fence consumer units in what it termed a “moderate” set of proposals. The commission acknowledged the concerns of some banks, including Barclays, by shying away from an enforced separation of investment banking units in its 208-page interim report published on Monday .

The commission also called for Lloyds Banking Group to divest more branches than the 600 already being offered for sale. “Rather than pursuing more radical policies towards capital or structure, the approach outlined is a combination of more moderate measures,” the report said. “They nevertheless entail costs to banks, some of which fall on the wider economy.” John Vickers, 52, chairman of the commission and former Bank of England chief economist, was asked by the government last year to make recommendations to ensure greater competition and the safety of British banking in the event of another financial crisis.

Today’s publication opens the way to five months of lobbying before the final report is handed to Chancellor of the Exchequer George Osborne and Business Secretary Vince Cable in September. “We absolutely reject the notion that we bottled it,” Vickers told reporters at a press conference in London on Monday. “ These are absolutely far-reaching reforms,” he said.


SHARES RISE

“The universal banks such as RBS and Barclays fare best from the report ,” said Joseph Dickerson, a banking analyst at Espirito Santo Investment Bank. “The key negative in the report is the prospect of further branch divestitures at Lloyds which is currently unquantifiable .” Barclays rose 3.3% to 306.8 pence as of 11:47 am in London trading while Royal Bank of Scotland Group rose 2.1% to 44.34 pence. Lloyds was 0.2% higher at 62.29 pence and HSBC Holdings, Europe’s biggest bank, declined 0.6% to 660.9 pence.

The benchmark FTSE 100 Index gained 0.2%. Officials at Barclays, HSBC, RBS and Standard Chartered declined to provide an immediate comment. The report “does deal in a very thorough way with how we tackle this problem of banks that are toobig-to-fail and on a taxpayer guarantee ,” Business Secretary Vince Cable told the British Broadcasting Corp on Monday. “I’m pretty sure we will come up with a solution to that problem, thanks to this report.” ‘



VITAL’ CONSUMER BANKING

Vickers recommended banks put their consumer operations into a separately-capitalised subsidiary within the holding company to protect depositors and enhance stability . Such a structure would be “less costly” for banks than full separation , the report said. In the event of a bank collapse, the “vital” consumer banking operations could be kept running while investment banking activities are able to fail safely, the report said.