Lloyds Banking Group is the UK lender most affected by a government-commissioned report into a shake-up of the British banking industry.
It may have to get rid of hundreds more branches to boost competition. Lloyds already has 600 branches up for sale after being ordered by EU regulators to sell them and shrink its balance sheet.
“This option (more branch sales) appears to be based on limited evidence and may paradoxically potentially delay a new competitor coming into the UK market,” said new Lloyds Chief Executive Antonio Horta-Osorio.
The report also want Britain’s top banks to shield their high street operations from riskier investment banking activities and hold more cash in reserve to protect taxpayers from any future financial crisis.
Ring-fencing their retail arms could force HSBC, Barclays and peers to hold billions of pounds more capital and increase funding costs, potentially reducing their profits.
Overall, however, the recommendations in the commission’s 208-page interim report were not as severe as many had feared
British finance minister George Osborne said he welcomed the “excellent analysis” and findings of the commission led by former Bank of England interest rate setter John Vickers.
Speaking at a news conference in London Vickers said he “absolutely rejects” criticism that his report had been soft on the banks, adding the proposals could be transformative.
The aim had been to make banks less risky and better able to absorb losses, thus ensuring that vital operations like payments systems and cash for ATMs are kept running if a lender nears collapse as RBS did three years ago.
The proposals for retail banks in the UK to amass higher levels of capital in case of any future economic crisis could lead to problems with Brussels with an EU legal challenge as the capital rules would not be enforceable on branches of European banks in Britain, which would put UK domestic banks adhering to UK regulation at a disadvantage.