More protection for savers! But it could cost you

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Retail customers may soon receive greater protection should their bank fail, according to the Banking Reform White Paper published today.

However, they are also the ones likely to foot the bill for this increased protection, warn experts.

Some even predict the proposals could spell the end of Britain’s free banking system.

Under the new proposals, outlined today, institutions will no longer be able to cross-subsidise their businesses with profits from their investment arms funding their retail arms.


Richard Lloyd, Which? executive director, says: "We welcome today's Banking Reform White Paper. Plans to ring-fence high street banking from riskier investment banking is a major step towards restoring consumer confidence and transforming the culture of banking.

"Never again should consumers have to foot the bill for a banking bailout that last time cost every man, woman and child £2,000."

However, Kevin Mountford, head of banking at, cautions:

"These proposals could come with a sting in the tail, as it may be retail banking customers that will end up footing the bill for these changes. Under the new rules, banks will be expected to hold a minimum of 17% capital as protection against losses and the burden of raising these funds will most likely fall on ordinary customers."

He adds: "A further problem for consumers is the fact that the providers’ investment arms are the parts of the business that generate the most profit.

"If banks cannot use this revenue to subsidise their retail businesses, we could expect to see the cost of consumer borrowing driven up, and this could even signal a move towards the end of free banking as we know it.

"There is no doubt that the cost of adopting these policies will mean the customer will likely pay more for their services."

The proposals are also looking at increasing competition in the banking sector. The exact details of the final legislation are expected to be in place by 2015.