Proposals to ring-fence banks' high street retail arms from their riskier investment outfits have been broadly welcomed by politicians, but industry voices have raised concerns that they could damage the fragile economic recovery.
Chancellor George Osborne praised the "very impressive" report from Sir John Vickers and his Independent Commission on Banking (ICB) and said he expected the measures to be in place by 2019.
"John Vickers himself sets out a timetable and I intend to stick to his timetable. There are a lot of changes involved so this will take some time," Osborne said.
Liberal Democrat Business Secretary Vince Cable also welcomed the proposals as he sought to damp down speculation that there was serious disagreement within government over how fast to proceed with the reforms. It has been suggested that Cable wanted the proposals to be implemented fat quicker than Osborne and David Cameron.
“There is no rift between us,” Cable told Sky News.
Shadow chancellor Ed Balls said the government should get on and implement the reforms as soon as possible. He said Vickers should be asked to create annual reports on the progress made, to ensure there was no "foot dragging" by ministers.
Balls added: "Osborne needs to come to the House before the end of the year and set out a clear timetable with milestones."
Plaid Cymru also welcomed the move to separate banks retail and investment arms. The Welsh nationalists' economy spokesperson, Jonathan Edwards MP, said it should ensure safety of customers’ deposits in high street banks.
“The problem with the system supported for decades by Labour and the Conservatives is that when the banks made a profit, the bankers made money - but when the banks made a loss, it was the taxpayer who bailed them out," he said.
“My concern though, is that powerful financial lobbyists will get to the Tories and Labour and try to water down these recommendations or delay them being brought into force."
The Vickers report was also welcomed by consumer groups including Sarah Brooks, head of financial services at Consumer Focus. She praised the move towards "old-fashioned principles" of banking which would benefit consumers.
"Now is the chance to tip the balance back in the favour of customers. The report has some good recommendations on competition and they must be implemented as soon as possible. By putting power back in the hands of consumers it make banks think long and hard about the service they offer."
She added: ‘It is welcome that the ICB recommends a banking system based on old-fashioned principles - better capitalised, less leveraged, and focused on the needs of its customers.
And Kevin Mountford, head of banking at MoneySupermarket.com said the measures should give consumers the "confidence and means by which they can find the best deals" to suit their financial needs.
But he warned that the additional costs on the banking sector could be passed on to customers or see a number of banking operations moving their head offices away from the UK.
As expected the report has received a cautious response from the banking industry. The British Bankers Association (BBA) said the City was already implementing sweeping reforms to make banks and the system and warned that any further regulations could damage the economic recovery.
The BBA said: "Any further reform measures adopted by the UK authorities need to be carefully analysed and compared with those agreed internationally. It is vital that the full impact any further reforms will have on the economy, the recovery and banks’ ability to support their customers in the UK is understood.”
And the Confederation of British Industry (CB) said the government must "rigorously examine" how and when to implement the proposals to avoid damaging businesses and threatening growth.
Dr Neil Bentley, CBI deputy director-general, said: "However some of the services that might be prohibited within the ring-fence, such as exchange rate hedging and other risk management products, could increase costs for firms to access critically important financial services."
Yet for some, the reforms did not go far enough. Mark Littlewood of the Institute of Economic Affairs said the idea that ring-fencing banks' retail arms from their investment operations would prevent another banking collapse was a "fiction".
"Vickers’ proposals entirely miss the point. They do not safeguard banks but neither do they ensure orderly failure of banks is possible. The government should reject the ICB’s recommendations and implement changes to ensure banks can fail properly," he said.
“The idea that bank ring-fencing will safeguard banks from failure is a fiction. Lehman Brothers was an investment bank without a retail arm, Northern Rock was a retail bank without an investment arm; ring-fencing would have had no effect on either.”
And the union Unite said the plan was a "weak gesture" which would not affect how the banks behaved.
David Fleming, Unite national officer, said:“The glaring omissions on workforce engagement and meaningful changes to remuneration systems within banking means that this report is another missed opportunity in preventing a repeat of the financial crisis in the future.
"Simply creating a firewall is a best a weak gesture and at worst a pointless act which will not in any material way impact the behaviour or culture at the top of the banks where this crisis was born.
These reforms may also not be the last. Iain Anderson, the director of market research firm Cicero Group, said Britain could not reform the banking sector by itself.
Writing for the Huffington Post UK, he warned that calls from within the United States urging Washington to consider withdrawing from the Basel III process could "throw all these reforms up in the air".
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