UK to probe banks for possible break-ups

Britain’s banks will be subject to a wide-ranging probe that will examine the possible break-up of retail and investment banks and ways to boost competition, although no single option is favoured at present.

The Independent Commission on Banking (ICB) was appointed three months ago by the government to assess the structure of the industry in the wake of the financial crisis, which saw taxpayers bail out leading financial groups.

The ICB published its first issues paper on the topic on Friday as its work gets underway.

It said it would look at separating companies’ retail and investment banking divisions and imposing limits on proprietary trading and investing, along with looking at boosting competition and reforming market infrastructure.

“The list is not intended to be exhaustive and … the commission has not moved towards any particular options at this stage,” it said in a statement.

Despite much strong rhetoric from politicians in recent weeks against investment bankers, many industry members and analysts have said it is unlikely that British banks will ultimately be forced to break up.

Most universal banks proved stronger than many “narrow lenders” with less diversified business models during the crisis, and a full break-up could also prompt leading companies to shift overseas, analysts say.

Business Secretary Vince Cable said this week further taxation on banks was possible but HSBC, Barclays and Standard Chartered have all warned they could leave Britain if the regulatory environment gets tougher.

“It doesn’t look proscriptive so far in terms of breaking up the banks,” said Execution Noble bank analyst Joseph Dickerson.

The commission has until the end of 2011 to report, and analysts have added that the British government is unlikely to sell its stakes in Royal Bank of Scotland and Lloyds until the full outcome of the report is known.

The UK government owns around 83 percent of RBS and around 41 percent of Lloyds.
Source: Reuters