Radical proposals to reform the UK banking
industry could result in major financial institutions restructuring
their leasing divisions and raising charges for asset finance,
experts have predicted.

In its eagerly-awaited interim report
published on 11 April, the Independent Commission on Banking (ICB)
recommended that the UK’s largest banks should be required to hold
a larger capital cushion to protect against losses. The commission
also recommended that banks’ retail arms should be ring-fenced from
investment banking divisions to make financial institutions safer
and more robust.

The proposed shake-up would increase costs for
banks and encourage them to look for savings outside their core
business – such as leasing, according to some consultants.

Derek Soper, chairman of IAA-Advisory, an
asset finance and banking consultancy, said banks may bring their
leasing subsidiaries back into their retail banking branches as
part of a cost-saving drive.

“I think banks will deliver leasing via
corporate banking services in their branches,” he said. “Running
separate leasing subsidiaries is an expense. Banks want efficiency
and to save costs.”

Colin Tourick, chief executive of asset
finance consultancy Aisby and Company, said retail banks may
increase their leasing charges to business customers to help offset
the expense of higher capital requirements recommended by the
banking commission.

“As a leasing industry specialist we should be
concerned by anything that increases the cost lessors need to incur
when doing business,” Tourick said. “It does seem that these costs
will rise, whether the lessor in question is part of a bank or is
using funds provided by the banking sector.”

Leading banks – including HSBC, Santander, and
Barclays – declined to comment on the ICB report. A spokeswoman at
the Finance and Leasing Association said it would discuss the
implications of the report with its members at a meeting later this
week.

Key proposals of the banking
commission report

The ICB stopped short of recommending that
banks should be broken up. Instead, it suggested that retail
banking should be ring-fenced from riskier investment banking
divisions. This could be done by creating a separate subsidiary
within a wider group.

The UK’s big retail banks should have to hold
more equity capital to absorb potential losses. The minimum new
capital level would be 10 percent of all loans — well above the 7
percent required by Basel III international rules introduced last
year.

The ICB is due to publish its final report in
September 2011.

nick.huber@vrlfinancialnews.com