RBS and Santander fear bank reform costs are 'understated'

The Independent Commission on Banking (ICB) estimates that the changes it proposed in September will cost the industry between £4bn-£7bn. Under the ICB proposals, Banks will have to ring-fence their retail banking arms, hold more loss-absorbing debt that could be written down in a crisis and make it easier for customers to switch to rivals.

These "are understated," according to Santander UK chief executive Ana Botin in a letter to the House of Lords' select committee on economic affairs earlier this month. Santander's analysis of the likely costs is in line with a £10bn estimate from analysts at Goldman Sachs, she added.

In a separate letter, RBS, which is 83pc state owned, also said the ICB cost estimate "is likely to be understated." Adapting to the ICB recommendations is likely to cost RBS between £500m and £1bn, plus annual operating costs of "some hundreds of millions of pounds," its chief executive Stephen Hester added.

Chancellor George Osborne praised the ICB as an "impressive piece of work" and said the Government would look to implement all of the Commission's recommendations by 2019 – the date suggested by the ICB, which was led by Sir John Vickers.