The ICB (Independent Commission on Banking) has said that to avoid the need for another bail-out, the largest banks in the UK should make changes to the way they operate.
In its 'Interim Report', the ICB sets out some options for banking reforms (in other words, some suggested changes to the way banking is operated in the UK).
It says that to make the banking system safer, it needs a combined approach that will help:
• Make the banks more able to absorb losses
• Make it easier (and cheaper) to take care of banks that experience trouble; and
• Reduce the incentives to take 'excessive risks'.
The ICB believes that the biggest banks in the UK should be required to hold more capital, along with separating the operations of their retail banks (where customers' money is stored) from investment banking - which is basically seen as the riskier area of banking. This means that if the investment banking arm of the institution ran into trouble, retail operations would not be impacted.
The ICB also said that it should be easier for bank account customers to switch their accounts.
It was claimed that the 'real and perceived difficulties' in changing bank accounts are leading to poor conditions for consumers. The ICB believes too much market concentration, difficulties in switching and confusing/complex products are to blame for poor conditions.
The solution, according to the Commission, could (in part) be brought about by an overhaul of the switching process.
This overhaul would begin with banks taking full control of their own switching process by making sure customers are given a 'guaranteed' timescale within which a switch has to be completed.
The ICB also recommended that there was a need for a more centralised system - where customers can switch their bank account provider and keep the bank account number they have been using.
The proposals for an easier account switching process have since been welcomed consumer 'watchdogs'.
James Daley, editor of Money Which?, was attributed in the Financial Times saying that making the switching process easier would 'force banks to improve interest rates and customer service to retain customers'.