The much heralded report into banking reform by the Independent Commission on Banking led by the former Boss at the Office of Fair Trading Sir John Vickers, has stopped short of recommending a full separation of retail and investment arms of banks and has given them until 2019 to reform.

The report recommends that implementation should start ‘as soon as possible’. And it also recommends that banks hold a 20% primary ‘loss absorption facility’ as well as introducing improved 7 day account switching procedures in the next two years to enhance competitiveness.

The aim of the commission’s recommendations is to reduce systemic risk, mitigate moral hazard, reduce the likelihood and impact of firm failure and promote competition in retail and investment banking.

Although the recommendations are far reaching and the most radical seen for some time, many people may think that they still do not go far enough.

The government has welcomed and supported what George Osborne calls an ‘impressive’ report. He also says that this report helps solve the ‘British dilemna’ of keeping the UK’s huge financial services sector globally competitive without allowing banks to become ‘too big to fail’ again.

The delay in implementing the reforms is designed to dovetail with Basel III and to give the weakened banks time to recover and then take the new UK banking system into the next decade.

But already many critics are saying that ring-fencing the retail banks does not go far enough and that giving the banks seven years to sort themselves out is effectively kicking the problem into the long grass so that in time, as memories fade, the rules can be lobbied against and watered down. They also say that it does give the current generation of bankers time to continue in the old ways and milk the system while they can.

Speaking in the House the Chancellor has said that legislation will be completed within the timeframe of the current parliament. The Shadow Chancellor Ed Balls whilst replying to the Chancellor’s statement said that, although he supported the report, some of this was too slow, but did also say that he was ‘deeply sorry’ for the last government’s banking failures.

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