Banking reform: towards the right structure - Parliamentary Commission on Banking Standards Contents

1  Introduction

1.  Structural reform represents a crucial building block for establishing a safer and more secure banking system in the United Kingdom. This Commission, in its First Report, concluded that partial structural separation of the kind proposed initially by the Independent Commission on Banking (ICB) and subsequently, with modifications, by the Government in its October 2012 draft Financial Services (Banking Reform) Bill could bring significant benefits for public policy and for banking.[1] We recommended a number of steps to strengthen the proposed legislation and to increase its chances of being effective, as well as other measures to enhance the stability of the banking system as a whole.

2.  On Monday 4 February, the Government presented to the House of Commons the Financial Services (Banking Reform) Bill.[2] The Government published alongside the Bill a policy paper on Banking Reform incorporating its response to our First Report.[3] The Government's policy was supported by a speech that morning by the Rt Hon George Osborne MP, Chancellor of the Exchequer,[4] an answer that afternoon by Greg Clark MP, Financial Secretary to the Treasury to an urgent question in the House of Commons,[5] and a speech by the Rt Hon Vince Cable, Secretary of State for Business, Innovation and Skills on Wednesday 6 February.[6]

3.  In our First Report, we considered the policy context of the Government's reform proposals, assessed the case for a 'ring-fence' to secure greater protection for the core retail activities of the banking sector alongside other structural reform options, described how the Government proposed to give legal effect to such a ring-fence and proposed additional measures for inclusion in the Bill. This Report:

a)  considers the Government's response to our First Report in relation to the most significant recommendations in that Report;

b)  provides (in the Annex to this Report) a summary of each recommendation in our First Report, the Government response and relevant legislative changes; and

c)  provides amendments to facilitate debate in the House of Commons and House of Lords on legislative recommendations in our First Report not yet reflected in the Bill.

4.  In preparing this Report, we have drawn upon oral evidence taken as part of our wider continuing work on banking culture and standards, most notably that from Sir John Vickers, who chaired the ICB, from Martin Taylor and Bill Winters, who were members of the ICB, from the British Bankers' Association (BBA) and from individual banks directly affected by the proposals. We also commissioned Philip Davies, formerly a Parliamentary Counsel and now a consultant legislative drafter, to prepare amendments arising from our legislative recommendations, which are set out in the Appendix to this Report. We publish these amendments while recognising that further work will need to be undertaken on how best to give legislative effect to our recommendations. The Commission is most grateful to all those who assisted with the work leading to this Report, including specialist advisers Bill Allen and Professor Geoffrey Wood.[7]

1   Parliamentary Commission on Banking Standards, First Report, HC (2012-13) 848 and HL Paper 98 of Session 2012-13 (hereafter cited as First Report), para 93. The Report was published on 21 December 2012. Back

2   Financial Services (Banking Reform) Bill, [Bill 130(2012-13)] (hereafter cited as Financial Services (Banking Reform) Bill) Back

3   HM Treasury and Department for Business, Innovation and Skills, Banking reform: a new structure for stability and growth, February 2013, Cm 8545 (hereafter cited as Banking reformBack

4   HM Treasury, Speech on the Reform of Banking by the Chancellor of the Exchequer, Rt Hon George Osborne MP, 4 February 2013 (hereafter cited as Chancellor's Banking Reform speech) Back

5   HC Deb, 4 February 2013, cols 23 - 34 Back

6   Department for Business Innovation and Skills,, Speech on Banking by the Secretary of State for Business, Innovation and Skills, Rt Hon Vince Cable MP, 6 February 2013 (hereafter cited as Speech by Secretary of State for Business, Innovation and Skills on 6 February) Back

7   Bill Allen and Professor Geoffrey Wood declared interests, relevant to the Commission's work, on 29 August 2012. Declarations of interest are available at The Commission has also appointed other Specialist Advisers in relation to other aspects of its work. Back

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© Parliamentary copyright 2013
Prepared 11 March 2013