Osborne's support for the plan isn't entirely unexpected, but it seems to have taken the City slightly by surprise (falling bank shares dragged the FTSE down 0.5% in early trading), if only because the final report hasn't even been published yet. But this way the Chancellor gets to claim that he's leading the way in cracking down on the banks - as opposed to submitting to Lib Dem pressure, or merely following the advice of independent experts.
And to be fair, the Vickers suggestion about ring-fencing always seemed like a sensible compromise between those who argued that the banks should be broken up completely, and those who felt that doing so would just undermine the sector's competitiveness and thus be detrimental to UK plc. The idea is that the banks will effectively have to run their retail and investment banking operations separately - and build a capital buffer around the former equivalent to around 10% of their assets. That way if it gets into trouble through its trading activities, the investment banking arm can be allowed to fail without bringing the retail operation down with it.
Makes perfect sense, in theory. But in practice, it won't be easy to do. For a start, the distinction between retail and investment banking is not always a clear line. And as John Kay argues in the FT today, banks already have various mechanisms for transferring funds between the two. Will the new rules be able to ensure that the ring-fence is impermeable? Or will it turn to be about as effective as the 'Chinese walls' that banks are already supposed to have between, for example, their investment banking and trading activity (i.e. not very)? Particularly, as ex-Chancellor Lord Lawson pointed out on the Today programme this morning, when both bits have the same management and shareholders.
Then there's the problem highlighted by RBS boss Stephen Hester: will ring-fencing actually just encourage more risk-taking, as banks try to make up for the higher cost of capital?
So there are lots of practical issues to resolve. But if they system is going to be reformed – and the financial crisis highlighted the flaws in the old system – this seems as promising an approach as any...