By Max Clarke

Yesterday saw the publication of the interim report of the Independent Commission on Banking, in which a team headed by leading economist, Sir John Vickers set out their proposals to bring about banking reform in order to stimulate lending and competition.

The recommendations were received with a mixture of responses, the Federation of Small Businesses (FSB) welcoming the news, while leading union Unite’s national officer labelled it as ‘merely tinkering at the edges’.

"The report provides a measured view of the issues that face the banking sector in the UK. The FSB has called for more competition in the banking sector for over a decade and urges the Government to be bold and use this opportunity to bring greater competition to the sector,” commented John Walker, National Chairman at the Federation of Small Businesses.

"With the big four banks holding almost 90 per cent of the market, it is imperative that we see a radical shift which allows greater competition to properly benefit the small business community. Only more competition will provide better service, better products and drive prices down.

Key recommendations in the report include imposing ‘ring fencing’, and the divestment of branches, each of which will be discussed below:


Said John Walker, National Chairman, Federation of Small Businesses: "We welcome the idea of separating different arms of the banks as for the most part, small businesses have little alternatives than their bank for vital financial services. Through making retail and investment parts of the bank financially separate it will help to provide a continuous service for small firms in the event of a problem within another arm of the bank, meaning that the retail arm can continue to lend and that deposits held should be safe."

CBI (confederation of British industry) head John Cridland voiced concern on the ‘ring fence’ proposal: “But the Commission’s proposals on ring-fencing could have a significant impact on the UK financial landscape, and will need to be carefully assessed to ensure that they allow banks to support businesses and growth, and strengthen this country’s position as a leading global financial centre.


"The sell-off of additional branches by Lloyds HBOS should be inextricably linked to the arrival of new entrants to the market. The FSB would be concerned if the branches were sold to other big players as this would not help to open up competition.

Cridland also welcomed the possibility of increasing choice and competition by selling off leading bank’s assets, saying: “Businesses agree that increasing competition and choice in banking is important, and the Commission has rightly highlighted switching between banks and increasing new entrants to the market as priorities.”

Lloyds banking group voiced scepticism over the EU mandated decision for them to sell off up to 600 branches, saying:
The Group believes that the Interim Report’s option for an expansion of the divestiture of 600 branches as mandated by EU (‘Project Verde’) would not be in the interest of our customers and appears to be based on limited evidence and may significantly delay meeting the commitments agreed between the UK Government and EU.

Lloyds chief executive, Antonio Horta-Osorio, commented: “The Board and I therefore share the management team’s surprise at the prescriptive nature of the Interim Report’s recommendation to expand the divestment beyond what had been agreed, which is not in the best interest of our customers.”