To some extent I am glad that something is being done beyond simply making "the bankers with their bonuses" into hate figures.

One of the issues a few years ago that has now been addressed to some extent, is that lenders were providing (and borrowers were taking) 125% mortgages and similar products. This lending was accounted for as secured and showed a "paper" profit in the accounts. In most cases the "paper" profit could only ever become a real profit in times when house prices were increasing.

We don't have 125% mortgages now but the same lenders are still happy to get involved with schemes where the properties are overpriced by 25% or more. Such lending is just as risky for the banks (and just as dangerous for the customers) as the 125% mortgages were, although at the moment it is mainly limited to new-build properties. Lenders and house buyers should be encouraged to be more wary of these schemes.

Another example of irresponsible lending is high-interest loans. These products provide expensive finance to those least able to afford it.

My opinion is that there should be greater emphasis on encouraging responsible lending. There should be an upper limit on how much interest and charges can be applied to a loan under normal circumstances (some countries use 50%, others 100% per year).

There should be changes to how lenders enter credit agreements into their accounts. At the moment, a bank can hand out an unsecured loan and enter an instant profit in their accounts long before the debt is repaid (for example, each £1000 "interest free" balance transfer with a 3% charge will put £30 profit straight into the annual accounts even if the debt has moved from one credit card to another for many years and may never get repaid). As most banks feel their main raison d'être is to make a profit, there is considerable scope for reform here. The current system makes it necessary to have a huge "one off" revision of the provision for bad debts every few years. The accounts of banks should show the profit when the money comes in and not when there is just a promise.

It is commendable to consider what will work best if a bank fails but there needs to be more attention to making bank failures less likely.

So...the British banking system is facing a huge shake-up.

The Independent Commission on Banking (ICB), headed up by John Vickers, today published a long-awaited report that makes recommendations about radical changes to the structure of our high street banks.

The main recommendation is that the retail divisions of banks should be ring-fenced to protect consumers in the event of crises - like the run on Northern Rock and the collapse of the Icelandic banks.

It also aims to enhance competition so that consumers get a better deal and implement a new system to make it easier to switch your current account. The report also recommends the changes are completed by 2019.

You can read more in our article: What will the banking reforms mean for you?

I'd really like to hear your thoughts on the report. What do you think? Will it safeguard the economy? What do you think will be the likely impact on high street banking? Do the measures go far enough, or are they too little, too late? Will it stifle economic growth? As always, it would be great to hear your thoughts, comments and opinions on these proposed changes.

Graeme
Community Editor
graeme.delap@moneysupermarket.com