Customers could pick up tab for overhaul of British banking system

CUSTOMERS could be hit with charges for retail banking services as financial institutions struggle to recoup costly reforms aimed at a major overhaul of the industry, experts have warned.

Consumer groups warned that banks could introduce fees for accounts and potentially shun ordinary customers to focus their attention on high-value individuals as a result of the long-awaited reforms proposed by the Independent Commission on Banking (ICB).

Neither Bank of Scotland nor Royal Bank of Scotland could rule out such charges being implemented as a result of the review which could cost the four major UK banks between £4 billion to £7bn a year to put in place.

The tougher-than-expected ICB report, led by Sir John Vickers, proposed that retail banks should be ring-fenced from the more risky investment banking divisions in a bid to avoid tax payers from footing the bill in case of a second crisis in the finance industry.

Sir John, whose report was welcomed in parliament yesterday by Chancellor George Osborne, said the commission’s recommendations would ensure banks were more self-reliant so the taxpayer “gets right off the hook” in the case of a failing bank. Billions of pounds of taxpayer money was poured into the UK banking sector during the recession.

The new regime would also allow people and businesses wanting to change banks to do so within seven days in a bid to boost competition in the market.

The report claimed that the sweeping reforms, which should be in place within eight years, would take the burden of a failing bank away from the taxpayer – and put the onus on to creditors of the institutions instead.

Under the proposals, the different arms of banks would have to be run separately, with independent boards and set up as separate legal entities.

The majority of British retail banks would be affected by the move, including Scottish institutions such as Royal Bank of Scotland and Lloyds Banking Group, which owns Bank of Scotland.

Competition was reduced in the banking sector during the credit crunch due to mergers, including that of Lloyds and HBOS.

“One of the key benefits of separation is that it would make it easier for the authorities to require creditors of failing retail banks, failing wholesale/investment banks, or both, if necessary, to bear losses, instead of the taxpayer.”