The Independent Commission on Banking (ICB) is due to publish its interim report on April 11 but an embargoed copy was handed out on Friday, sources close to the commission told Reuters.
“A very small number of senior people in the Treasury and Department of Business has received copies,” said one source.
Analysts polled by Reuters expect the commission to recommend that UK banks form separate subsidiaries for their retail banking and investment banking operations, to “ring-fence” and protect savers if the investment bank fails.
While this proposal would not be as drastic as recommending that groups split their retail and investment banks into two separate companies, analysts say it could put onerous new capital requirements on the top UK lenders.
The “Big Four” UK banks — Lloyds Banking Group, Barclays, HSBC and Royal Bank of Scotland - have all resisted calls for a radical shake-up of their business.
The ICB’s findings could also affect Spanish bank Santander and Standard Chartered, which is headquartered in London despite making most of its money overseas.
And several banks have made veiled threats to move their headquarters away from London if British banking regulation becomes too much of a burden.
Under the expected subsidiarization model, banks have to allocate capital to different units or country operations, as Santander does with its British arm. The units are legally ring-fenced but remain under the parent’s ownership.
The “ring-fencing” model is aimed at protecting ordinary savers if a company’s investment bank fails, and to ensure that a bank’s “utility” functions — such as money transfers or small business services — still operate in such a scenario.
However, such reforms will also likely result in higher costs and more capital for groups with major investment banking divisions — such as Barclays.
“If the ICB recommends a high degree of separation, the market will react negatively given the costs involved. An increase in funding cost seems inevitable,” brokerage Evolution Securities said in a research note.
“As an example, BarCap has around 100 billion pounds of wholesale debt - if the cost of funding for BarCap was to increase by say 100 basis points due to this, the impact could be 1 billion pounds after tax,” it added.
Six out 10 analysts and fund managers polled by Reuters also said they expected that the ICB may suggest a minimum core Tier 1 capital solvency ratio of 10 percent or more for lenders.
Monday’s interim report from the commission comes before it makes its final conclusions in September.
