It is inevitable that we are about to enter a period of lobbying by the banks (not that they weren’t already doing this!) whilst the ICB report is interpreted and translated in to legislation. We have seen evidence that it has already started, where Santander,
whose investment banking arm is relatively small (5% - 10% of its assets), are asking that this can be included in the ring-fence, therefore avoiding the need to separate the two banks.
The area of structural reform is the one most open to interpretation. Two key questions, the outcomes of which have major organisational implications, are:
- Which customers will be sold which products from which part of the bank? A lot of this is mandatory, however there is still a fair degree of choice, particularly in dealing with medium sized corporates who can, in many instances, be served from either side
of the ring-fence divide.
- How will the support functions be arranged to support both the ring-fenced bank and the investment bank? This applies to all of the functions which are potentially shared including operations, risk, treasury, finance and I.T.
The sooner the banks a have got to grips with the implications of the report, and what options it presents them, the better equipped they will be to lobby for a favourable outcome.