12/09/2011 06:59 BST | Updated 12/11/2011 05:12 GMT

Bank Shares Fall Following Publication Of Sector Reform Package

PRESS ASSOCIATION -- Britain's biggest banks have seen their shares fall after a Government-appointed commission unveiled a far-reaching reform package set to cost the industry up to £7 billion a year.

The Independent Commission on Banking's (ICB) vision for the sector, which should come into effect by 2019, includes ring-fencing banks' high street divisions to protect them from riskier investment arms.

Elsewhere in its highly-anticipated report, the ICB said banks should set aside a larger cash base than currently required to cushion the blow of potential losses or future financial crises.

The 363-page report was described by the Treasury as "impressive" and an important step towards a new banking system. But the Unite union said the proposals "kick the overdue reform of the banking sector into the long grass" and would bring immediate uncertainty to workers in the sector.

Taxpayer-backed banks Royal Bank of Scotland and Lloyds Banking Group saw shares slide 4% apiece. Barclays fell by just over 4% and HSBC dropped 2% as investors digested the impact the reforms will have on the banks' balance sheets.

Sir John Vickers and his fellow ICB members stopped short of recommending Lloyds must sell more branches than the 632 it has been told to sell by European Union regulators but said the Government should ensure the sale leads to the emergence of a "strong challenger bank".

The ICB said the proposals - which will cost UK banks around £4 billion to £7 billion a year to put in place - will "put the UK banking system of 2019 on an altogether different basis from that of 2007".

Sir John said the Commission's recommendations ensured banks were more self-reliant so the taxpayer "gets right off the hook". "Measures of this kind will do a lot to contain the damage as well as to reduce the risks in the first place," he said.

Chancellor George Osborne, who has the power to act on or ignore the ICB's recommendations, welcomed the report and said the Government would now act to implement its recommendations, getting the new rules in place by the end of the decade as the Commission had recommended.

The British Bankers' Association (BBA), representing the country's banks, warned that careful consideration must be given to the reforms and their potential impact on the wider recovery.