ICB released its Final Report on 12 September. The lengthy report looks in detail at the ICB’s remit, the aims of the reform and the effects of the proposals on financial stability and competition. ICB believes that current proposed or agreed changes that will affect banks are not enough to deal with the risks the UK banking sector presents, and makes a number of specific recommendations, addressing:

  • The retail ring-fence: this will isolate in a separate corporate entity banking activities that must be continually available, to ensure (i) activities incidental to the services do not threaten their provision and (ii) the services can still be provided if the bank fails, without government support. Some services will have to fall within the ring-fence (specifically deposit-taking and lending business with customers and small and medium-sized enterprises). Others cannot come within the ring-fence (any services that involve the bank in taking risks and that are not integral to the provision of the ring-fenced services, and any other services that would make resolution more costly or threaten the objectives of the ring-fence). Some other services could fall within the ring-fence if required. ICB also said it should be possible easily to isolate a ring-fenced bank from its corporate group if necessary, and that a bank's relationships with other entities in its group should be conducted on a third party basis.
  • Loss-absorbency: ICB says banks should have an equity-to-risk-weighted assets (RWA) ratio of at least 10% if they have a 3% or more ratio of RWA to UK GDP. There would be a sliding scale for those with ratios of RWA to GDP of between 1% and 3%. There would be a Tier 1 leverage ratio of at least 3% for all UK-headquartered and all ring-fenced banks. Additionally, there would be bail-in powers for resolution authorities, and all insured depositors should rank ahead of most other creditors in insolvency. There would be extra requirements on UK-headquartered Global Systemically Important Banks (G-SIBs).
  • Competition: ICB makes specific recommendations on the Lloyds Banking Group divestiture and sees the benefit in smoothing the process of current account switching. It also says prudential requirements should not act as a barrier to market entry. Further, it says transparency across all retail banking products should be improved.

ICB has not recommended an immediate market investigation reference, but says one may be needed depending on the next few years’ developments. On timing, ICB says there should be early resolution by the Government of policy issues and that banks should put in place changes as soon as possible. However, it appreciates the need for a long implementation period and says all changes should be complete by the latest at the start of 2019 (the Basel III implementation date). (Source: ICB Final Report 12 September)