Recommendations to ring-fence retail banking from investment banking will have costly repercussions for UK banks that run way beyond the additional capital requirements that have attracted most attention, warns an adviser.Chris Tattersall, head of business consulting at Grant Thornton, also states that investors should not underestimate the additional associated cost of overhauling banks operations. Dividing the operations of retail and investment banks will be a lengthy, complex and expensive process, says Tattersall. Banks are already straining to comply with the list of changes asked of them under new regulations, including Basel III, the Dodd-Frank Act and the Foreign Account Tax Compliance Act. The cost of separating out their operations increases that complexity, and could cost as much as £1 billion each over three years, says Tattersall. And he adds that, even after the initial investment, continuing annual operating costs will also rise markedly. Ring-fencing as outlined by Sir John Vickers Independent Commission on Banking, which was released on September 12 is intended to isolate high-street banking operations from riskier investment banking activity. The report recommends that large UK retail banks should have equity capital of at least 10% of risk-weighted assets. This exceeds the Basel III minimum of 7% equity capital requirements.
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