More needs to be done to boost competition among retail banks, the Independent Commission on Banking says, including the possible sale of more branches in addition to the 600 that Lloyds had already agreed to sell off to alleviate European Union concerns.
Lloyds bought HBOS, and hundreds of Halifax and Bank of Scotland branches, in 2008 after the Government set aside competition law to stop the bad debt-ridden HBOS from going under.
Head of the ICB, John Vickers, stopped short of recommending that the takeover be reversed but did say that the already agreed disposals would “have a limited impact on competition unless it was substantially enhanced”.
The report adds: “Enhancing the divestiture would be more economically efficient than reversing the Lloyds TSB/HBOS merger”.
Lloyds says that it is assessing the impact of the report before responding.
The Commission, set up by Chancellor George Osborne last June to avoid a repeat of the financial crisis, says that the retail operations of UK banking groups such as Lloyds, HSBC and Barclays should be “ring-fenced” from their banking arms to protect customers if they should go under.
It adds that banks should also hold more capital, 10% compared to the 7% global standard, to guard against bad loans.
The recommendations will come as a relief to bank bosses. It had been feared that the Commission would propose a higher capital ratio, which would dent profit, and a break up of the major groups.
This interim report will be followed by final recommendations in September. The Government, however, does not have to follow the advice.