- Fundamental restructuring required to essentially create banks within banks
- As return on equity constrained, most costs will be passed onto consumers
- Likely to see a return to 1940s style ‘simple’ banking
Commenting on the final report from the Independent Commission on Banking (ICB) released today, Jon Pain, co-head of KPMG’s Regulatory Centre of Excellence in Europe, commented:
“The ICB recommendations are only one small step short of full Glass-Steagal separation of retail and investment banking in calling for operational, economic and legal separation. While this may improve safety of retail banks, it is ‘game changing’ for bank structures and will come at a cost. In many respects we are seeing a return to a more simple 1940/50s style of retail banking where it is perceived as more of a basic utility with low return on equity for shareholders.
“To comply with the ringfencing requirements outlined in today’s report, banks will need to fundamentally overhaul their business models. Essentially banks will need to create another bank within their bank with new boards and systems. This will come at a significant cost and the challenge for banks is to get this right in the first instance as it will not be easy to undo.
“The biggest surprise from today’s report is the doubling of capital requirements although it is not clear how this relates to CRD4. Retail banks will need to reassess whether they can make sufficient returns and will need to fundamentally rethink their business model and the subsequent costs for retail and SME customers. This in turn may accelerate the end of free banking in the UK. Equally new entrants will need to assess carefully the attractiveness of entering the market in this ‘new world’ of retail banking.
“The report is also littered with scope for additional regulation and competition responsibilities of the Financial Conduct Authority. Questions also remain over the exact details of what is permissible under the ringfencing requirements. The industry awaits Treasury’s clarification on both this issue and the exact timeframes around implementation.”
- Ends-
Notes to editor:
For further information please contact
Monica Fiumara, Senior PR Manager, KPMG
Tel: +44 (0)20 7694 5674
Mobile: +44 (0)7901 105180
Email: monica.fiumara@kpmg.co.uk
About KPMG
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.
