Retail And Investment Banking Separation Law

Retail And Investment Banking Separation Law.

It is expected that George Osborne will announce he will legislate to separate retail banking from more risky investment activities.  This follows the recommendations by Sir John Vickers in his report into banking.

The financial crisis in the UK, started with Northern Rock being bailed out by the taxpayer, followed by Lloyds and RBS.  The coalition Government then set up the Independent Commission on Banking to review the financial sector and in September published its report into ways of avoiding such bank failures in the future.

The report recommends that a bank's retail business should be ring-fenced from its investment business.  It also states that the different arms of banks should be separate legal entities with independent boards.  

Another recommendation is that banks must have a buffer to absorb the impact of potential losses or future financial crises - of at least 10% of domestic retail assets in top-quality form, such as shares or retained earnings.