A friend of mine maintains that to have a non-smoking area in a restaurant is akin to having a non-peeing area in a public swimming pool and he probably has a point, so I wonder what he makes of the recent report from the UK’s Independent Commission on Banking. The interim report into the state of the banking market, competition and whether retail banking should be separated from investment banking stopped short of recommending total separation and instead advocated Chinese walls between the operations.

 From the market reaction, it can be assumed that the industry breathed a collective sigh of relief at the findings. However, such artificial divisions are not always that easy to establish, and the devil will be in the detail as to how they are implemented. If the requirements are so draconian that the operations truly survive as completely separate entities, then they might as well have been split up. If they are more relaxed, then there is every chance that there will be pollution between them. Will the parent organization be able to shift capital between the two entities for example ?  Will they be able to share common infrastructure, services & premises. Exactly how far do you go with the scalpel.

 Such a move will undoubtedly increase costs, and as cost is one of the battlefields upon which banks compete, how will these costs be recovered. Will these recommendations have the unintended effect of pushing the UK over the precipice into “paid for” banking ?

 The acid test of course is whether these changes, if, when and how they are implemented render the taxpayer immune from underwriting the financial institutions that are too big to fail. As long as that thought remains uppermost in the minds of those who translate such recommendations into practice, they have a sporting chance of doing so. If not, then we risk an even more expensive bailout process down the track as some highly paid consultants unpick the knitting.