Electrify the banking ringfence - FT.com The UK government will shortly publish its Banking Reform Bill, giving effect to the recommendations of the Independent Commission on Banking, chaired by Sir John Vickers, to create a ringfence around the industry's core retail activities. The Parliamentary Commission on Banking Standards, which I chair, supports the creation of this ringfence. However, in our report scrutinising the draft legislation, the commission also concluded that without significant changes it may well not achieve its objectives. The ringfence must be "electrified" if it is to stand a better chance of success - in other words, if the banks test the ringfence too much, they will get a shock. We therefore recommended a reserve power for full separation, an approach Sir John himself endorsed in evidence to the commission this month. The regulators, too, have told the commission they want electrification. And they have come forward with proposals to give it practical effect. The banks, on the other hand, do not want electrification. They seem to be the only ones. The lobbying campaign against this proposal predictably started the moment our report was published - just as it did when the ICB first suggested introducing a ringfence. The strength of the industry's lobbying, even at this early stage, makes the case eloquently for electrification. Even while chastened by public anger over their role in the financial crisis and subsequent revelations such as Libor rigging , they are lobbying. Specifically, the banks have been claiming that a reserve power to enforce full separation would bring uncertainty, deter investment and imperil London's position as the world's leading financial centre. The opposite is the case. Electrification would reduce the uncertainty that would inevitably accompany endless gaming of the rules. As Sir John made clear, the only way this proposal will increase uncertainty is if the banks intend to try to get through the ringfence. Nor, as has been alleged, would the reserve power be applied arbitrarily. It would be subject to independent scrutiny before each case of its use. All history tells us that banks will be at the ringfence like foxes to a chicken coop unless they are incentivised not to do so. On past evidence, they will test it nonstop and try to persuade politicians to alter it in their favour. Electrification is therefore essential to ensure that the banks comply not just with the rules of the ringfence but also with the spirit. We must legislate now for more benign economic circumstances, when banks are under less intense scrutiny. At that time, politicians will be particularly susceptible to lobbying and the integrity of the ringfence will be most at risk. Our proposals help protect the ringfence from such pressures in the long term. Banks see it as a starting point for negotiations; we view it as a starting point for a more stable and sustainable banking system. In addition to enhancing financial stability, we also believe the ringfence can have benefits for banking standards. This is not something that was in the ICB's terms of reference; but, following two years of scandals across the banking industry, it is central to our work. Of course, structural reform is by no means the only way to improve banking standards and the commission will now be largely focusing on the second phase of its work. This will involve examining whether changes in areas such as corporate governance, competition, the regulatory and tax framework, and the civil and criminal law could enhance standards and improve behaviour in the banking industry. In the few short months we have to review these issues, we cannot produce a silver bullet - or even a series of silver bullets - that can protect us from all future scandals and disasters. But we aim to produce some practical proposals for improved standards and culture, contributing to rebuilding trust in the banks and restoring pride among their employees, the majority of whose reputations have been wrongly impugned. Only when confidence in the industry recovers will it be able to play its full role in generating economic growth. The writer is chairman of the parliamentary commission on banking standards and Conservative MP for Chichester