UK banks unlikely to move their operations abroad to avoid regulation, Vickers tells MPs

Sir John Vickers told the Treasury Committee that there was a "low probability" that banks would leave the UK as a result of his proposals to separate the retail activities of a bank from its investment operations.

The ICB was set up by the Government to come up with ways to make UK banking safer and more competitive, and to look at the possibility of structural reform.

Its report proposed to 'ring fence' retail banking activities into a separate subsidiary of a wider banking group, to make it easier for the Treasury to step in and protect customer-facing activities if a bank gets into trouble.

Chancellor of the Exchequer George Osborne has previously stated that any changes to the UK banking system as a result of the report will not be completed until the report's deadline of 2019.

Vickers admitted that ring fencing would raise the funding costs of investment banking operations, which have previously been able to rely on Government rescue to protect their high street activities should they fail. However, he said that he felt the increase was "manageable".

He reiterated his previous estimate of an annual pre-tax cost to the banks as a result of the proposals of between £4 billion and £7bn.

This figure was a "best estimate" Vickers said, based on figures from city analysts and additional data provided by the banks.

Vickers described the recent downgrading of 12 UK financial firms by the credit rating agency Moody's as a "benign development".

The downgrading came as a result of the removal of the Government's "implicit guarantee" that it would not allow banks to fail that would come as a result of ring fencing, MPs said.

The move was a "natural reflection of the taxpayer getting one step further off the hook," Vickers said.

The long implementation timetable and the nature of the proposals should stop them having a short-term negative impact on the City of London's competitiveness, he said.

"There could have been a detrimental impact if we had insisted on a short timetable, such as 2014," he said.

"[The city of] London remains an incredibly attractive centre to base international operations."

The heads of major banks including Lloyds, Barclays and RBS will now give evidence on the significance of the report to the House of Lords Economic Affairs Committee.

Vickers will return to give evidence to the House of Lords committee next week.