The chairman of the Financial Services Authority (FSA) has said that proposed plans to separate retail
and investment banking operations may not go far enough to make the UK banking system safer.
The Independent Commission on Banking (ICB), which was set up by the government to look at the
financial crisis and make proposals on how to prevent a recurrence, is due to submit its initial interim
report in April.
Most analysts expect a recommendation that retail banking operations should be separated from
investment banking activities – however many feel it will stop short of forcing banks to split up,
and instead recommend corporate restructuring that will “ring-fence” retail banking from riskier
investment and trading divisions.
However FSA Chairman Adair Turner told BBC Radio: “That is absolutely not enough. I think what is
absolutely clear is we cannot rely on the idea that if one of these big banks get into trouble we can
resolve it smoothly.”
Turner recently said that UK banks should looking at tripling their capital requirements from 2013, to
help shore up the banking sector and mitigate the risks of financial institutions failing in the future.
He also indicated that curbing dividend payments to shareholders needed to form part of their plans
to build capital.
“Over the next few years as they build up their equity levels to the levels that are required, they
need to keep moderating their dividend payments,” he said.
The ICB’s final report is due in September this year.
