An influential panel of UK lawmakers has recommended breaking up banks if they abuse new proposals that force each institution to ring-fence their retail operations away from investment banking as well as boosting capital requirements.
According to the Parliamentary Commission on Banking Standards' (PCBS) Second Report on its website, titled Banking reform: towards the right structure, the group want to enforce tough repercussions on the institution should the regulator and an independent reviewer find that the bank is breaking rules that come into force in 2019.
"The Commission welcomes the Government's commitment to amend the Bill to provide for a reserve power to break-up a bank that seeks to flout the ring-fence," says the report.
"We consider it important that the regulator's powers to break-up a bank should be exercisable only after consideration of the regulator's relationship with the bank by an independent reviewer. It is also important that the reviewer should be independent of Government. We welcome the Financial Secretary to the Treasury's commitment to give careful consideration to our specific proposals on the conditions on the exercise of this power," it adds.
On 12 September 2011, the Independent Commission on Banking led by Sir John Vickers published a number of proposed reforms on Britain's banking system, including the split of all banks retail operations from riskier investment activities, in order to "to create a more stable and competitive basis for UK banking in the longer term and provide more than greater resilience against future financial crises and removing risks from banks to the public finances".
While the UK Chancellor George Osborne delivered government backing to the proposed ring-fencing in June 2012, the PCBS conducted its own study to determine the impact the measure will have on Britain's banking industry and recommend changes, amendments or additions to the proposal.
The PCBS, which was created in the aftermath of the first proven case of banks manipulating interbank lending rates and to investigate changes in banking culture and regulations, conducted a raft of hearings to gather more evidence to how ring-fencing under the current proposal will impact Britain.
In the PCBS' second report, it emphasises that stringent measures should be taken against banks that abuse the ring-fencing principles and determined that "there remains much more work to be done to improve the bill."
"The Bill as presented to the House of Commons represents not the beginning of the end for the necessary reform process, but the end of the beginning," says the report.