The 'big four' respond to sweeping changes to banking sector

Chief executives from Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking are expected to tell the Treasury Select Committee this afternoon that reforms proposed in the Independent Commission on Banking's (ICB) interim report will make banking more expensive for customers.

Taxpayer-owned Royal Bank of Scotland recently warned that it would have to work "hard" to mitigate the additional costs of the proposed changes.

The ICB, which will publish its full report in September, wants greater separation between the retail operations of the banks and their investment banks, but it stopped short of recommending splitting the banks up.

The Government commissioned the ICB report to review ways of avoiding "too big to fail" banks sparking another credit crisis, after the multi-billion pound taxpayer-funded rescues of both Lloyds and Royal Bank of Scotland.

One of the chiefs, Antonio Horta-Osario, the new boss of Lloyds, has already criticised the ICB's recommendation that a planned sale of 620 branches to meet European Union state aid rules be increased to help boost UK competition.

Lloyds is expected to send out the sale prospectus for the 620 branches this week to potential buyers, said to include Virgin Money and the Co-op Bank. Mr Horta-Osario may take encouragement from reports yesterday that the Treasury is happy for this process to go ahead, which could make it impossible for any additional branches to be included.

The ICB is concerned that Lloyds will still wield too much power in the UK market even with 620 fewer branches as a result of its controversial merger with HBOS and subsequent bail-out by the taxpayer. It estimates that following the branch divestment Lloyds will still account for 18% of all savings business, 25% of current accounts and 19% of mortgage lending.

Mr Horta-Osario said any expansion of the branch sale programme would not be in the interests of customers and "may paradoxically potentially delay a new competitor coming into the market".

The Lloyds chief has also indicated he intends to revive the Halifax brand, owned by HBOS, as a "challenger" brand to Lloyds and to invest more into its products.

The three other banks have been much quieter about the ICB's recommendations, which includes setting up internal firewalls between the retail and investment sides and more assets to be held as a buffer in case something goes awry, and analysts have suggested they are not that unhappy with the proposals overall.