Responses to Interim Report

The ICB published its Interim Report on 11 April 2011, and launched a 12 week consultation on the proposals contained within that document. The ICB received over 170 submissions in response to this consultation and extends its thanks to those from academia, financial services, business, trade unions, charities and members of the public who made their views known. It has published all non-confidential responses alongside this summary of the views received.

Financial stability measures: structure

The views received on the proposal to ring-fence UK retail operations were mixed. Some responses felt that this was the right solution, pointing to the balance between costs to the banks of this reform against the benefits of continued diversification within institutions. Views from this perspective were concerned about the design, but agreed in principle that this would enhance resolvability and reduce the Government subsidy to banks. Some responses felt that the ring-fence and higher capital might encourage more productive investment in the UK economy, though others argued that it would be very expensive and have an adverse impact on the economy. Views against the ring-fence were split between a number of respondents who felt that ring-fencing is not sufficiently radical to remove the implicit guarantee, and hence called for a full split. Within this group, there were some who accepted the ring-fence if a full split was not to take place. A smaller number of responses were against any form of structural change at all, arguing that enhanced recovery and resolution plans, other reforms and improved management are sufficient to enable banks to fail in an orderly manner. A further group of responses rejected the ring-fence and split questions altogether, and argued that only more fundamental reforms to remove the ability of banks to increase the money supply through the creation of credit could prevent future crises and bank failures.

Where responses focused on the design of the ring-fence itself, there was general agreement that it should be mandated to provide some basic retail and SME services such as current accounts, but there was much more debate on how wide the fence should be: some favoured a narrow ring-fence including only retail activities while others favoured the inclusion of a wide range of corporate banking activities. There was a general but not total consensus that trading and market making activity should not be allowed within the ring fence, though a recognition that treasury functions needed to be included to ensure risk management. A small number of responses recommended using the Building Societies Act as a guideline for defining the ring-fence particularly in relation to the use of hedging instruments.

A limited number of responses were concerned with governance within the ring-fence bank. Responses were mixed, with a number calling for unlimited liability on directors, and enhanced sanctions for misbehaviour. Others felt that some level of independence for the ring-fence board would be desirable.

Financial stability measures: loss-absorbency

There was much debate over the question of capital levels in the ring-fence bank (and the rest of the bank, in cases where the ring-fence is just a part). A good number of responses were very concerned that the UK would be too far ahead of other countries in setting higher capital for the ring-fence, and felt that the ring-fence should be in line with international standards as agreed through the Financial Stability Board and the Basel Committee processes. Others felt that there was not sufficient equity capital available to meet higher requirements. On the other hand, many respondents did not think the Interim Report went far enough, and called for much higher capital, with up to 20% of risk weighted assets, for significant institutions. Some felt that higher capital made for safer banks and so reduced government subsidies, some felt it was an alternative to ring-fencing, and others felt that it could have benefits for the more productive parts of the economy. There was a recognition that the rest of the bank could have lower capital than the ring-fence, but this was far from a universal view.

Turning to other loss-absorbency measures, there was support across the board for bail-inable debt, though some scepticism over whether it would work in practice: a common view was to see bail-inable debt and extra capital as interchangeable, with more capital being required if bail-in did not seem to work. Most responses on this topic emphasised the desire to see debt take losses in crises. There was less support for contingent convertible debt, largely due to concerns around how to design triggers, and the potential depth and liquidity of markets for the instruments.

There was general support for depositor preference, with many recognising that retail depositors were least well placed to assess banks’ financial health. However, some did raise concerns that there might be a shift to secured funding on the ring-fence bank balance sheet, which could lead to over-encumbrance of assets and therefore reduce non-secured creditor claims in insolvency. There was a particular concern raised by pension funds on their position in a depositor-preference world, and the implications for bank pension schemes running deficits. It remained, however, a widely supported measure.

Competition measures

On competition proposals, respondents offered a wide variety of views. Some found the ICB’s analysis of the retail bank market unconvincing, seeing it as a very competitive market. Those providing such views also often rejected the idea of enhancing the divestment of Lloyds Banking Group, suggesting that the current divestment was sufficient to remedy State Aid and to create a viable challenger. There was also concern over the implications to the value of the Government’s shareholding. Others, however, agreed with the ICB’s analysis and called for increased divestments, in some cases with the aim of effectively reversing the Lloyds-HBOS merger. There was strong support for enhanced switching, including a faster switching service that might include account number portability, though some doubted the benefits to competition of improved switching. Barriers to entry including the time to get banking licences, access to the payments system and cost of capital were all highlighted to the ICB by some respondents, though others felt there was evidence that new entrants were making headway in the sector. Some respondents suggested that the banking system would be more stable if it was more oligopolistic, citing Canada and Australia as examples.

There was general support for more transparency in product pricing and fees, and across retail bank offers in general. Some also wanted to see easier comparison between different bank products, perhaps through internet providers. There was concern raised about bank branch closure in rural and isolated communities. Respondents suggested that the Post Office might be able to play a fuller role in providing banking services, while others wanted to see more shared banking services.

Views on the ICB’s suggestion that the Financial Conduct Authority (FCA) should have a primary duty to promote effective competition were mixed. Some, but not all, respondents supported the proposal for the new body to have more robust competition objectives.


The ICB received fewer views on this issue than during its September call for evidence. Some respondents were concerned that the UK should not introduce reforms in excess of other jurisdictions as this would threaten the City’s primacy as a financial centre. They were particularly concerned that higher capital requirements would cause banks to leave the UK. However, others felt that a stable, clear regulatory regime was more important, and that making UK banks safer could enhance competitiveness. They also recognised a difference between the domestic UK market and City’s international role, and did not see the ring-fence as threat to the UK’s leading position in financial services.

The ICB will publish its Final Report on 12 September 2011

Responses Received

Absalon (1) (2) (3)



Admati, Anat R and Hellwig, Martin F

Age UK

Assocation for Financial Markets in Europe

Alffa, Harry

Antonioni, Peter and Hopper, Will

Association of British Insurers

Association of Corporate Treasurers

Association of Foreign Banks

Bank of Britain

Barclays (1) (2)*

Bolton, Chris

British Bankers’ Association

British Chambers of Commerce

Brocklebank, Charles

Bronjewski, Va

Brown, David

Brown, Nick

Building Societies Association

Campaign for Community Banking Services

Cavell, David

Cefalas, Judith

Champion, Sylvia

Christian Council for Monetary Justice et al

Christian Socialist Movement

Clarke, Donald R

Cohen, Desmond

Colley, Matthew

Confederation of British Industry

Consumer Focus

Co-operative Financial Services

Coppack, Lee

Corporate Value Associates

Crothers, Mark

Davies, Hubert

Davies, Simon

Davies, Simon and Bill


Donald, Huw

Elphick, Clive

F&C Investments

Fairchild, Richard; Giansante, Simone and Tonks, Ian

Federation of Small Businesses

Fenwick, Mike

Field, L. W

Financial Inclusion Centre

Financial Services Consumer Panel

Ford, Greg

Fordham, Max

Fraser, Vic

Fricker, Peter F S

Global Policy Institute

Gracie, Peter

Guegan, Peter

Guy, Christopher

Handler, Thomas

Heathfield, David

Heaton, John


Hill, Edward F

Hill, Malcolm

Hodgson, Graham

Hopkinson-Woolley, Alexander

Horner, Dennis

Hornsby, Stephen

Horwood, Robert

Hoye, David

Hoylake Village Life

HSBC Group (1) (2)*

Hutton, Will and Nightingale, Paul

Industry and Parliament Trust

Institute of Chartered Accountants in England and Wales


International Centre for Financial Regulation

International Consumer Policy Bureau

Investment Management Association

Jeffares, Neil

Jefferson, Andrew

JP Morgan

Jukes, Andrew

Kelly, Kate

Kelly, Paul

Kirby, Hugo


Krause, Andreas and Giansante, Simone

Kurowski, Per

Latchford, James

Law Society

Lawrence, Stephen

Leivers, Robert

Lindsey, Ian

Lister, Peter

Lloyds Banking Group (1) (2) (3) (4)*

London First

Long, Richard

McCarthy, Michael

Miller, Antony

Mittelholzer, Herman (1) (2)

Moore, Paul

Musgrave, Ralph

National Association of Pension Funds

National Consumer Federation


New Economics Foundation and Compass

Nicholson-Smith, James

Nimmo, Craig

O’Brien, Chris

Payments Council

Pareto Retail Limited

Parker, Phil

Parrett, Stephen

Patten, David

Penrose, Oliver

Pope, David

Positive Money, New Economics Foundation and Southampton University School of Management

Pringle, Robert and Sandeman, Hugh


R, Elspeth

Reed, Nigel

Rogers, Dick

Royal Bank of Scotland Group*

Sadler, Dave

Santander UK

Scottish Government (1) (2)

Segal, Richard

Senior-Milne, Graham


Shearer, Tony

Shuter, Leonard

Solutions for Compliance

Southwood, Simon

Spyropoulos, Dinos

Stamper, Alan

Standard Chartered

Standard Life

Stern, Michael

Stroude, Mary

Sullivan, Caroline

Tesco Bank


Tooze, Nigel

Toporowski, Jan


Turvey, Stephen

Unite the Union

Virgin Money*

Watson, Michael

Werbiski, Ruth

Werner, Richard A

Which? (1) (2)*

Wichelow, Phillip

Williams, Valerie

Wood, Ian

Wotherspoon, Hugh R

Wright, Maurice R

Yorkshire Building Society

Zimmerman, Alex

The version provided for publication is a redacted form of the original submission