The Parliamentary Commission on Banking Standards (PCBS) has considered the Government’s response to its first report on the Banking Reform Bill. Regarding the “electrification” of the ring fence, this second report:

  • welcomes the Government’s commitment to subject regulators’ powers to break up a bank to an independent reviewer;
  • recommends that the regulator be able to require a bank to divest itself of a specified division or activity, rather than full divestment; and
  • says the Bill should include a statutory provision on powers to decide full separation across the sector, and that the decision to give effect to the full separation should require affirmative resolution in both Houses.

PCBS also:

  • welcomes the Government’s commitment to toughening the test for the exercise of delegated powers on exemptions from the ring fence, and stresses that the use of these powers be subject to enhanced parliamentary scrutiny;
  • says that it will only support the sale of derivatives within the ring fence once it has seen the secondary draft legislation and is satisfied with the definition of simple derivatives and the inclusion of a gross cap;
  • is disappointed with the Government’s support to a "parent-child" relationship between the investment bank and the ring-fenced bank, given the problems of culture and standards that have come to the fore recently;
  • is also disappointed with the Government’s reliance on Europe to legislate the bail-in tool; and
  • will consider recommending a more stringent leverage ratio for UK banks in its final report.

PCBS suggests that, to allow for adequate scrutiny of the Bill and PCBS’s recommendations, the report and third reading stages in the House of Commons should not take place before the summer. It has provided amendments to facilitate Parliament’s debate on its recommendations that are not yet reflected in the Bill. (Source: PCBS Second Report of Session 2012-13: Banking Reform: Towards the Right Structure)