VICKERS REPORT

Vickers Report

Vickers Report

Introduction

Vickers Commission which regarded to be Independent Commission on banking was incorporated by the government of United Kingdom to put recommendations for the reform of the United Kingdom banking sector, in essence of overcoming with systematic risk, justifying moral hazard and overcoming the likelihood and impact of firm failures. The Vickers Commission was also required to look towards competition in the United Kingdom banking sector. The Vickers Commission put forward an Interim Report on April, 2011 which was in due of putting forward provisional views. From the responses it get to its Interim Report, the Vickers Commission put across its final recommendations which known to be the Vickers Report. This final report was established in view of improving stability and competition in United Kingdom Banking.

Discussion

The recommendations in this report is put forward in purpose of developing more competitive and stable basis for United Kingdom Banking in the longer version. That is much more aim at much more flexibility against future financial crisis and removing risks from banks to the public finances. It also implies a banking system that is efficient and effective at providing the basic services of banking of operating secure banking systems, efficiently channeling savings to productive investments, safeguarding retail deposits, and managing financial risk. It should be more influencing competition among banks to provide services required by knowledgeable customers. This was aim at making United Kingdom as strong centre for banking and finance and considers being positive for the competitiveness of the United Kingdom.

United Kingdom Independent Commission on Banking put forward a forward which comprises of several recommendation includes; separating operations for commercial and investment banking (that is ring-fencing), to increase over capital requirements for United Kingdom retail banks, appropriate actions to increase competition in the United Kingdom banking sector.

Its recommendations coverage into three sections:

Increased over capital requirements for banks

Increasing competition with implication of deducting customer switching costs; and

Ring-fencing retail banking with influence of separating operations for commercial and investment banking sector

Rationale behind Recommendations

Retail ring-fence is aim to separate those banking activities in order to improvise services crucial to the economy and to a bank's customers in essence of ensuring that such can be protected in the event of the bank's failure in absence of government solvency support and is not threatened as a result of activities which are supplementary to it. It is designed over some objectives to achieve at the lowest possible cost to the economy:

make it convenient to extract both non-ring and ring fenced banks which gets into problems, without the condition of taxpayer-funded solvency support;

protect vital banking services on which SMEs and households depend from problems anywhere else in the financial system; and

reducing over risks to the public finances, limit government guarantees and making it less appropriate that banks will execute risks in the first instance

To increase over bank's capital requirement was required in order to limit the risks of insolvency. It was required to make banks more stabilize and well functioning in the ...