The chairman of the Independent Commission on Banking has said that he will not back down from breaking up the banks if the current proposition to ring fence their retail and investment sections does not appear to work.
The biggest banks in Britain operate on two different platforms. The first is their retail sector, which provides accounts to people all over the UK and can be a way for people to get mortgages and small loans or to start up savings accounts. These sides of the banks are the safe side, though they are not as profitable as many in the financial industries would like.
The other side of the banks are the investment arms, where huge amounts of money are thrown around playing the markets, buying up debt and selling it on, and doing all sorts of financial wizardry to turn a profit. These parts of the bank can be very profitable, but the risk is significantly larger as well.
Currently, the investment part of the bank and the retail part are linked, with funds from each being used on both. This means that when something goes disastrously wrong in the investment sector, retail customers suffer.
The ring fencing will aim to stop that from being the case, forcing banks to operate each side independently and safeguarding customers from the banks’ gambling on markets. The chair of the ICB, Sir John Vickers, has said “We were clear it had to be a strong fence otherwise it would be completely undermined.”
However, the next step would be to break up the banks, stopping the arms from operating together entirely, and today he has refused to rule that out: “If the industry turned out to be unreformable, it is possible that total separation would turn out to be the best step to take.”