Banking report: What does it mean for customers?

Customers at a Lloyds ATM Selling off more Lloyds customer accounts is a key recommendation of the report

The Independent Commission on Banking (the Vickers report) is not just about protecting the banking system, customers and taxpayers from the effects of financial crises and banking collapses.

It also wants to promote greater competition between banks, so that customers get a better deal.

"The Commission's aim is to promote effective competition, in which banks compete to serve customers well rather than exploiting lack of customer awareness or poor regulation," the report says.

How will that happen?

The ICB's report puts forward three main ideas to enhance competition.

The first is that much more effort should be put into establishing a large new bank on the UK's High Streets, to compete with the shrinking number of existing ones.

Lloyds has already been told by the European Commission to sell at least 600 branches by November 2013, as the price for being bailed out by the UK government during the banking crisis.

The Vickers report suggests Lloyds, which expanded hugely by taking over HBOS in 2009 in a government inspired rescue takeover, should in fact "substantially enhance" this sell-off.

It wants the government to ensure that the new bank that emerges, based on the 632 branches now being sold by Lloyds, should have at least 6% of the personal current accounts held by UK banks, up from the 4.6% of UK's current accounts that the sell-off would currently involve.

This would create "a strong and effective new challenger", the report says.

What about switching accounts?

Making people and businesses confident about switching their current accounts has long been seen as the key to introducing meaningful competition among High Street banks.

To this end, the Vickers report suggests that by 2013, there should be a new industry-wide account redirection service that would be free to customers.

This would, it says, make the switching of current accounts a smooth process, by redirecting all payments in and out of an old account into a new one, within seven working days.

The service would operate for 13 months for each account switched and should "be seamless for the customer, so that throughout the process they have complete, problem-free use of their banking services and are not inconvenienced by debits or credits going to the wrong account".

It should also come with a guarantee against any losses from mistakes.

And the third big idea?

That the forthcoming Financial Conduct Authority (FCA) be given the explicit job of promoting competition and transparency in the banking industry.

For customers, that would mean being told on annual statements how much potential interest they had foregone by putting money on deposit.

This is the effective charge most people pay for having an account, as they gain little or no interest while their money is on deposit, while the banks lend it to borrowers at a substantial margin.

Other measures for the FCA to consider include forcing banks to supply enough data for price comparison websites to compare the accounts on offer from different banks.

Will this cost me more as a bank customer?

The report suggests the overall costs to the banking industry of the reforms would be between £4bn and £7bn a year.

That would be made up partly of higher day-to-day operational costs and the higher costs to the banks of funding themselves by borrowing more expensively in the financial markets.

The report says this "would be borne by some combination of banks' shareholders, employees, creditors and borrowers".

However, it doubts that much of this will feed through to High Street customers in the form of higher borrowing charges.

Most of the costs would, in fact, fall on the running of the investment banking businesses.

"Given the international nature of competition in wholesale/investment banking, the degree to which private cost increases could pass through to customers in the UK economy should be relatively small," the report says.

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