The Independent Commission on Banking has published a report that says that UK banks should ring-fence their retail banking divisions to protect them from riskier investment banking arms. This will represent the biggest shake-up in banking regulatiion in decades.
The report also recommends higher capital reserves to protect against future failure. The issues is whether these new reforms will make the UK such an unattractive place in which to base banking operations that some banks decide relocate elsewhere, where the regulatory environment may seem to be more friendly. Alternatively, could it have the opposite effect, and in a troubled world, make the greater financial security and reduced risk a positive selling point? Whatever the answer, it is certain t increase the cost of retail banking. Loans to small businesses and individuals will inevitably cost more when retail banks cannot subsidise their operations from their investment banking arms and there are higher admin costs.