LONDON, May 6 (Reuters) - Britain will publish detailed proposals on reform of its banking sector next month, the Treasury said, and will press ahead with plans to ensure that savers get their money back ahead of other investors if banks fail.
There had been speculation within the industry and political circles that the "depositor preference" proposal would be dropped or watered down following complaints from the banks that it would erode the value of their bonds. Under the proposals, bondholders would have to take a lower place in the queue of creditors should a bank become insolvent.
But those concerns are set to be brushed aside as the government is intent on implementing all the recommendations made by the Independent Commission on Banking (ICB) last September.
"We said that we would legislate to fully implement the Independent Commission on Banking to make Britain's banking system safer by the end of this parliament, and we are on track to do that," a spokesman for the Treasury, as Britain's finance ministry is known, said on Sunday.
That would suggest that the new legislation would be introduced by 2015.
The ICB, led by Oxford University academic Sir John Vickers, had laid out plans intended to shake up the country's banks, forcing lenders to form barriers between their retail and riskier investment arms and to protect ordinary customers better in case of a crisis.
"We've consulted on the best way to take forward their recommendations," the Treasury spokesman said. "These far-reaching reforms will help solve the dilemma of how Britain can be home to one of the world's leading financial centres without exposing British taxpayers to the massive costs of those banks failing."
A likely date for the announcement would be finance minister George Osborne's annual Mansion House address to financiers on June 14. That would be followed by draft legislation in the autumn.
The white paper is expected to clarify how rigid the rules will be on keeping domestic retail operations "ring-fenced", including whether investment banking services for small and medium sized companies should be placed within the retail or the investment banking operations.
It will also outline plans to make banks better able to absorb losses, improve competition and make it easier to deal with banks that get into trouble.
The government had intended to release a so-called white paper setting out detail of the changes in the spring, and banks had been told to expect it by early or mid-May. (Reporting by Matt Scuffham; Editing by Anthony Barker)