Reforming the banks in the UK : an impact assessment of the draft bill and alternative capital requirements

De Feo, Giuseppe and Løland, Henriette Elisabeth Bauge (2012) Reforming the banks in the UK : an impact assessment of the draft bill and alternative capital requirements. Fraser of Allander Economic Commentary, 36 (2). pp. 83-91. ISSN 2046-5378

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    Abstract

    On Friday, 12 October 2012 the UK Government published a draft of the banking reform bill in order to implement "key elements" of the recommendations put forward by the Independent Commission on Banking (henceforth ICB) led by Sir John Vickers. This is the first piece of legislation revising the regulation of the financial sector. Banks will be required to comply fully with ICB recommendations by 2019. [...] The HM Treasury estimates that by implementing the ICB recommendations, the requirements to increased capital could be met by increasing by 5 per cent the overall equity capital within the industry. Arguments have been made that these new capital restrictions, in that they surpass international requirements, might contribute to reduce competitiveness for the UK banking sector. Others have called for a stricter regulation to increase stability. In this regard, the aim of this research is to analyse whether alterations in levels of the capital requirements in the ICB recommendations will have a substantial effect on the UK economy, furthermore how different levels of capital requirements might impact the stability of the banking sector.