The Vickers report – what’s the impact for consumers?

Broadly speaking, there were two parts to this week’s interim report from the Independent Commission on Banking. The first focused on how best to avoid another cascade failure of the banking system, which would likely place the onus on the government to bail out failing banks in order to avoid system-wide collapse – as happened in 2008. The proposals to tackle this are twofold: One, create distinct ‘firewalls’ between retail and investment operations in UK banks; Two, increase the ratio of capital held to lending issued in the retail part of banks.

Sir John Vickers - published his interim report on the future of banking in the UK this week

Judging by the rise in the share price of UK banks after the report was released, the view from the City seems to be that these recommendations are less onerous than might have been expected (though as the Independent’s Andrew Grice noted, the balance of squealing from both sides showed that Vickers may well have got it just about right).

The second part focused on competition in the retail banking sector, and it’s here that the consumer is likely to feel the most immediate change. Vickers’ view is that despite Lloyds Banking Group selling off 600 branches, more need to go to encourage competition in the high street. Bad news then for Lloyds (who reacted strongly) as well as HSBC, Barclays and particularly Santander, who have only recently finished a buying spree of high street operations.

What does all this mean for the consumer? Well, at least two significant changes. The first is the potential for the UK to follow many other markets and start charging consumers for operating a bank account. The UK has held off on this front for many years, but if retail banks are going to hold more capital, they will claim they need to raise money accordingly – charging for a current account is one way to do this. Try explaining that to an already hostile public though.

The report could mean more competition

The second could be more banking names on the high street. Metro Bank is one such option – despite offering what many journalists label ‘middle of the road’ savings rates, it continues to attract positive reviews, and more importantly, customers. The second is the Co-Operative, interviewed on Channel 4 News last night, and likely rubbing their hands with glee as the market opens up before their eyes.

In theory, more competition means improved rates on savings and mortgages for consumers. The question is though, will these improved rates compensate for the extra charge being paid for banking services that is likely to be introduced?

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