The Vickers Report: an assessment

Abstract

Although the Vickers Report claims that its objectives are to “create a more stable and competitive basis for UK banking”, in practice it does not do so. Instead, its real purpose is to limit the contingent liability of the UK taxpayer to support the British banking system, and the Report does effectively deliver that important objective. But it does so at some considerable additional cost. Ring-fencing UK banks into two, or three, parts will add to transactional and operational costs for both banks and their larger clients. The ring-fenced UK retail banks will concentrate even more on financing UK property, and became even more subject to the vagaries of the UK property cycle. The investment bank, ie the non-ring-fenced part, will face more expensive and difficult funding conditions. The idea that retail banks must be saved from liquidation, but investment banks can and should be left to fail, is dubious. A better approach would have been to require banks to hold much more equity, and to intervene earlier to stop their downward spiral, rather than to impose such a separation.