MPs: Banking Commission must rethink ring-fencing

Andrew Tyrie, chairman of the Treasury Select Committee, said: "A retail ring fence would entail a huge change to the structure of the banking sector in the UK.

"It is crucially important that the debate on that reform does not take place behind closed doors.

"It is equally important that all the information and arguments needed in order to assess the reforms are published.

"To implement the ring-fence without having done so would be a leap in the dark.

"Our long-term prosperity depends on getting this right.

"That is why, in his final report Sir John must set out all the detail on the alternative proposals for all to see."

The committee called on the ICB to give more details on how it sees corporate governance working in ring-fenced banks, including whether the same people could sit on the boards of the retail and universal parts of the business.

Tyrie said: "Failure to address the issue of corporate governance was a serious omission in the ICB's interim report. It must be tackled head-on in the final report."

He also appeared to back bank chief executives like Stephen Hester of Royal Bank of Scotland and Bob Diamond of Barclays when they warned ring-fencing could create problems.

Tyrie said: "They claimed that a retail ring-fence would contribute little to increased financial stability and may inadvertently increase moral hazard and risk-taking.

"Sir John needs to demonstrate his proposals would not have the negative consequences that his critics assert."

Banks face big fines in clampdown

The European Commission today said that it plans to give regulators the ability to fine banks up to 10% of their annual turnover if they fail to meet new stricter rules on capital and corporate governance.

Michel Barnier, Internal Market Commissioner, said he had brought forward new rules to govern the 8000 banks in Europe to bring them into line with the Basel III agreement which will be adopted globally at the end of this year. He also promised regulators would be given greater powers to act including ordering banks to reduce credit "when it looks like it is growing into a bubble."

Barnier said: "We have all been shocked to see poorly performing banks continue to doll out cushy bonuses to their executives. Today's proposals will help put an end to that. If capital levels of a bank fall too far, bankers' bonuses should fall as well."