The Importance Of Ring Fencing And Loss Absorbency

To establish a more effective and competitive UK banking system, the 2011 report of the Independent Commission on Banking (ICB) has come up with different recommendations, the ICB was chaired by Sir John Vickers, this is why the report is also called the ‘Vickers Report’. These recommendations are mainly based on strengthening the stability of the banking system by a combination of measures on the structure and the ability to absorb losses of the banks. It is suggested that some degree of structural separation between investment banking and retail banking is necessary, not only because it can resolve banks in trouble easier, but also avoiding the banking services affecting by international shocks which is beyond the control of the local authorities. On the other hand, banks with a greater loss absorbing capacity will definitely be helpful in strengthening the stability of the banking system. This paper will be focusing on the proposals for ring-fencing and loss absor bency, explaining what these proposals are about and how can they make changes to the banking system. Then by comparing the differences of ring-fencing from other structural reform, and realizing the effect of the loss-absorbency on the banking system, analysis from different views will be made for drawing up a conclusion on whether these proposals can successfully achieve the ultimate goal, which is creating a legal and more stable basis for UK banking in a long term. The general idea of the proposal