Measured Approach Expected in Banking Industry Report; WATCHDOG LIKELY TO STEER CLEAR OF BREAK-UP DEMAND

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Byline: RHODRI EVANS

PROPOSALS for the future of Britain's banking sector will be set out today when the Independent Commission on Banking (ICB) delivers its keenly-awaited interim report.

The announcement will come after the Government-appointed watchdog conducted a year-long probe into the sector to promote competition and financial stability.

There have been industry fears of a radical shake-up that could have significant implications for Britain's major players - from a full-scale break-up of Lloyds Banking Group to an industry-wide split of retail and investment banking operations.

But reports point to a more measured approach from the ICB in its spring report.

Industry insiders are said to believe Lloyds may avoid a call for a break-up, despite now accounting for 30% of personal current accounts and 21% of the savings market.

Instead the ICB may suggest changes to boost competition, such as making it easier to switch accounts and making pricing more transparent.

It is also expected to stop short of proposing the most draconian steps to split retail and investment banking operations, although it is still thought to be aiming for a partial separation to protect savings deposits from so-called "casino" banks.

It will not give its final verdict until September, but today's report is increasingly being seen as key to the commission's thinking on how to tackle current imbalances in the industry.

The commission was set up last June to conduct a review after the financial crisis drastically altered the industry and highlighted the need to reduce the risk of future bail-outs.

The meltdown left Britain with one of the most highly concentrated retail banking markets in the world, with the top five groups accounting for 85% of UK personal current accounts and 70% of savings accounts.

Of particular concern was Lloyds after its hurried-through rescue of HBOS at the height of the crisis saw it become an unrivalled force in retail banking.

Members of the ICB have already confirmed they would consider breaking-up Lloyds, which is 41% owned by the taxpayer.

It had been thought the ICB could push for the HBOS deal to be unwound, or for it to offload more than the 600 branches to appease European competition concerns. …