Retail banks should be ring-fenced, says commission

UK banks' retail operations should be "ring-fenced" from their investment banking arms, the Independent Commission on Banking has recommended.

However, in its interim report the commission stopped short of recommending the two should operate as separate entities.

It said more competition was needed in retail banking, including the sell-off of more Lloyds branches.

The commission's final recommendations will be published in September.

The banking commission was set up by the government last June to review UK banks after the financial crisis.

However, the government is under no obligation to implement its recommendations.

Bank shares reacted positively to the report, with Barclays shares up 3.2% and Royal Bank of Scotland 2.4% higher in morning trade.

Critics insisted that the commission had been too timid, but Sir John Vickers, the chairman of the commission, denied this.

"I absolutely reject any notion that we bottled it," he said at a press conference.

"In no sense at all are these half measures... these are absolutely far-reaching reforms."