Bank bosses called to account as breakup inquiry gets under way



 Jill Treanor, 20 September 2010 


• Independent commission to make first public statement

• Lloyds and RBS may be affected by restructuring recommendations


The bosses of Britain’s biggest banks have been hauled in to meetings with Sir John Vickers ahead of the publication this week of the key issues he intends to examine in his independent review of banking. Set up by the coalition to consider breaking up the banks, the commission will on Friday make its first public statements as Vickers, its chairman, and four other members begin their year-long review. Their findings could lead to dramatic changes in the way in which the banking industry is structured.


Vickers, an economist and former head of the Office of Fair Trading, is understood to have already held discussions with the heads of the banks that he regards as crucial to his inquiry – the Royal Bank of Scotland (RBS), Lloyds Banking Group, Barclays, HSBC and Spain’s Santander.


The inclusion of Santander is crucial, analysts said, as it demonstrates that the commission is not focused only on the politically sensitive issue of whether “casino” investment banks should be carved out of high street banks – a matter of concern to Barclays, RBS and HSBC. It is also considering the wider issue of competition in the banking sector, which has become more concentrated since the financial crisis.


Lord Oakeshott, Liberal Democrat Treasury spokesman, said he believed both questions would be examined. “The commission has two tough challenges – how to split investment banking from basic banking and then give retail customers real choice. We Liberal Democrats believe it can’t and won’t duck either of them,” Oakeshott said, as the Lib Dems gathered in Liverpool for their party conference.


Santander has grown rapidly during the financial crisis, adding Alliance & Leicester and Bradford & Bingley to its Abbey National franchise. In addition, the Spanish bank is in the process of buying 318 branches that RBS has been forced to sell by the EU in return for the taxpayer bailout.Lloyds has also been transformed after being allowed by Labour to rescue HBOS during the banking crisis, even though the deal breached competition rules.


The two state-backed banks, RBS and Lloyds, could both be affected by the commission’s recommendations, and the City minister Mark Hoban has already admitted that any share sales will be delayed as a result of the review. A decision to recommend a carve-up of investment banking and high street banking would force restructuring of RBS, while concerns about retail competition could hurt Lloyds.


The commission’s meetings have been held in private until now, but Friday marks the start of its attempt to conduct its work in public. A handful of debates will be held nationwide to allow members of the public to make their views known. The five key banks are also expecting to be sent questionnaires in the coming weeks, and the commission will set out its initial thinking next March before finalising a report to present to the cabinet sub-committee overseeing banking reform in a year’s time. That cabinet committee is chaired by George Osborne, while HSBC’s outgoing chairman, Stephen Green – who has promoted “big” banks – will have a seat at the table once he becomes trade minister in the New Year.


While the commission does not have any powers to compel the banks to co-operate, sources believe that political pressure should be strong enough to ensure that they comply with requests for information.


The other members of the commission are the former Barclays chief executive Martin Taylor, former investment banker Bill Winters, Financial Times columnist Martin Wolf and former energy regulator Clare Spottiswoode.





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