UK panel urges banking reorganisation******

LONDON, April 11 (AP): A British commission recommended Monday that banks should be reorganised so that firewalls protect retail operations from investment banking, an attempt to shield taxpayers from the sector's risk-taking without forcing the banks to split up. The preliminary report from the Independent Commission on Banking aims to avoid another catastrophic failure of a financial system dominated by a few large banks too big to be allowed to fail. The commission, which will make final recommendations in September, said it was considering "forms of retail ring-fencing under which retail banking operations would be carried out by a separate subsidiary within a wider group," which would still allow some capital transfers within the organisation. The report also called for part-nationalised Lloyds Banking Group PLC, which has a dominant position in retail banking with more than 30 per cent of UK current accounts, to dispose of more branches beyond the 600 required by the European Commission. Sir John Vickers, the commission's chairman, told the British Broadcasting Corp that the hastily arranged takeover which created Lloyds Banking Group during the financial crisis "was certainly not good for competition and it turned out to be bad for financial stability as well." Lloyds, 41 per cent owned by taxpayers, had no immediate response except that it was "assessing the full implications of the report." Nevertheless, the market response appeared to be positive, with Lloyds shares up 1.8 per cent at 63.27 pence in early trading. Shares in Barclays PLC and Royal Bank of Scotland PLC, which have large investment units, were up strongly too on relief that the commission did not call for more drastic remedies, such as splitting off the investment banking divisions from the retail side.