Independent Commission on Banking chair Sir John Vickers has rejected calls to toughen up his bank reforms with a total separation of retail and investment banking in light of Libor rigging and misselling scandals.
Speaking to the Parliamentary Commission on a Banking Standards yesterday, Vickers said total separation would not have stopped Libor or retail misselling scandals.
The ICB published its final report in November 2011, recommending ring-fencing banks’ retail arms from its investment activities. The Government brought forward the proposals in its draft banking reform bill published last month, set for parliamentary debate early next year.
Vickers said: “Evidence has come to light during the course of the last year suggesting that in parts of the sector standards are lower than were expected and believed at the time of our report.
“However, I do not see these events as shifting the argument decisively away from what we proposed in favour of full separation.
“Standards and culture issues have occurred on both sides of the fence with misselling emerging on the retail side and Libor on the wholesale side.”
In June, Barclays was fined £290m for Libor rigging and also ordered to pay redress for interest rate swaps misselling along with HSBC, Lloyds Banking Group and the Royal Bank of Scotland.
The political pressure towards full separation has been building, with Labour leader Ed Miliband calling for tougher reforms and former Federal Reserve chairman Paul Volcker arguing that ringfences are “porous” and break down over time.
The banking inquiry was set up in July by chancellor George Osborne to consider whether the ring-fence is tough enough or the Government should go further.
Vickers added: “I think misselling would have occurred in a retail bank as there are issues around commission payments, the revenue model of retail banking, especially in a period of low interest rates.
“I would caution against any view that had there been separation then cultural issues would not have arisen. I suspect that is simply not the case. I have not felt myself leaning towards a full split.”