OTHER PROPOSALS

* Capital and possible liquidity surcharges on systemically important banks

* Greater focus on standalone sustainability of national subsidiaries

* Move much over-the-counter derivative trading to central counterparties

* Investment bank profits to enhance capital levels, not excessive bonus payments

COMMENTARY

PETER MONTAGNON, DIRECTOR OF INVESTMENT AFFAIRS, ABI

"While we do not see a formal Glass-Steagall approach as practicable, it might be helpful if market pressures led to banks reorganising themselves into more manageable units, with either a utility or an investment banking focus. The application of more rigorous capital requirements to the trading book would promote such a market development, which we would broadly support.

We are more sceptical about liquidity and capital surcharges for "systemically important" banks, not least because "systemically important" is difficult to define.

"It is vital that any restructuring of bank capital must be done in an orderly way, so as not to destabilise the market in subordinated bank debt, for example through forced early redemption at a discount, as this market is critical for funding UK pensions."

TIM PLEWS, PARTNER, CLIFFORD CHANCE

"'Living will' proposals set out a very clear process as between regulator and systemic bank ... Some people might have thought it would just be a cup of tea once a year. It ain't going to be a cup of tea. It looks like a fairly continuous dialogue.

It's an impressive paper ... and it's a very transparent paper, so you have to congratulate the FSA on the measure to which it's prepared to reveal its own thinking publicly."

JAMES PERRY, PARTNER, ASHURST

"The proposals on "living wills" look very preliminary -- the really complicated issues, like special purpose vehicles, IT and inter-connection between businesses -- are left for another day. The industry won't like the sting-in-the tail, which is that FSA might make a bank sell or demerge bits of itself if the living will isn't up to scratch. That could involve exactly the same problems as separating the utility from the casino.

The FSA's view on "too-big-to-fail" banks is predictable -- Mervyn King may like the intellectual clarity of separating the utility from the casino, but the FSA knows that higher capital is the only solution that will fly internationally.

Interestingly, though, the FSA are clearly going to pursue their campaign against bank branches -- so-called "subsidiarisation" -- through the device of these higher capital charges. The idea is to make it harder for branches to make financial sense, even if the FSA can't legally force banks to do what it wants.

For the FSA statement, click on: http://www.fsa.gov.uk/pages/Library/Communication/PR/2009/142.shtml

(Reporting by Kirstin Ridley)