Vickers provides the best of both worlds for George and Vince

It’s the moment of the truth for Britain’s banking sector: the publication of the Vickers report. The headline is as expected: the Commission recommends the imposition of a ringfence on banks’ ‘core operations’ (such as consumer deposits and small business lending) from the riskier elements of their business. According to the FT (£), the banks will have discretion over where the ringfence will fall, giving lenders and users a degree of flexibility, which suggests that Vickers is not recommending the full separation of retail and investment banking, as some had hoped.

Vickers also proposes that banks reserve 10 per cent of the capital in their ringfenced operations to guard against future crises, which is expected to cost as much as £7 billion annually. As one might expect, the airwaves have hummed to discussion about those attached costs. Vickers has said that he envisages profitable banking arms lying outside the ringfence to meet those charges, so costs should not be passed onto high street and small business consumers. (This crucial point is likely to be raised in parliament when George Osborne responds to the Vickers report later this afternoon.) Finally, Vickers urges that these reforms be legislated in this parliament, but he warns against implementing the full of scope of his plans until 2019.

Laura Kuenssberg reports that the Chancellor has welcomed the proposed ringfencing measure and timetable for its implementation. Meanwhile, the BBC reports that Vince Cable is “entirely happy” with Vickers’ plans, save for a few tweaks to be introduced after the next election.

So, both sides of the coalition are content, which is no mean feat given the internal furore that has raged in recent weeks. The Conservatives can enact banking reform in this parliament without implementing the Act until the end of the next parliament. This will allow them to concentrate on working with the banks in the present to stimulate the recovery, which is vital because the economy is likely to determine the next election. At the same time, the Liberal Democrats, for whom banking reform has become totemic, can claim credit for ensuring that such a contentious issue has been resolved; they can point to this as an example of a coalition government walking where majority premierships have feared to tread. It will be interesting to see how the two Eds respond to this ‘Win win situation’ for the government.