British Prime Minister David Cameron wants a major “watering down” of proposals from the Independent Commission on Banking (ICB) to ring-fence the retail arms of top UK banks, over fears it could hurt the economy, the Sunday Telegraph reported. The report, which cited government sources, said Cameron had told senior officials that he wanted to move the banking debate on and that any proposals from the ICB to split retail and investment banks and increase capital requirements needed to be reviewed. Asked to comment on the Sunday Telegraph's report, a government spokeswoman said: “We are not going to pre-empt the ICB. We haven't seen the final report and will respond once the final report is out in a couple of weeks.” The ICB, set up last year by the government to examine reforming the British banking industry after it got badly burnt by the credit crisis, will publish its final report on Sept. 12. Its findings are set to back proposals made in an earlier interim report to ringfence banks' retail arms from riskier trading operations to protect taxpayers from future financial crises. However, Britain's “Big Four” banks —Barclays , HSBC and part-nationalised lenders Royal Bank of Scotland and Lloyds — have consistently warned that excessively tough regulation could harm the UK economy. There have also been recurrent media reports that the likes of Barclays and HSBC could move their headquarters overseas, although both those banks have consistently denied they want to move their headquarters away from London. The ringfencing approach would get banks to form separate subsidiaries for different retail and investment banking operations while keeping the same parent holding company. The ICB has also asked banks to hold more capital — targeting core Tier 1 capital of 10 percent of risk-weighted assets — and the overall impact of the reforms is expected to hit banks' profits, which could make it harder for them to lend to businesses. The ICB is still to define the nature of its ring-fencing model, since some business activities such as property lending, business loans and treasury operations could fall into both the retail and investment banking categories. After the final ICB report is issued, it will be up to the government — through a Cabinet committee on banking chaired by finance minister George Osborne — to choose what to implement into law, probably starting later this year or early in 2012.
