* Interim report due next wk from Ind. Commission on Banking
* Banks, govt previously sparred on Project Merlin
* Parties seen eventually reaching deal
By Matt Falloon and Sarah White LONDON, March 31 (Reuters) - Fierce lobbying by Britain's big banks against tougher regulation and swipes at bankers by politicians are set to continue for a while yet, with at least another six months of uncertainty in store.
The Independent Commission on Banking (ICB), reviewing the future shape of Britain's banks, has fiercely resisted political interference ahead of its interim report next month.
That, analysts say, means any eventual deal agreeable to both politicians and banks may have to wait until the commission's final report in September.
The government's Liberal Democrat junior coalition partners have been particularly vocal in attacking the banks in recent weeks, with deputy prime minister Nick Clegg saying he wanted to "wring the neck" of bankers who award themselves big bonuses and that the banking system was "riddled with irresponsible risk taking".
But even Clegg has hedged his bets, passing the buck back to the ICB and even then not committing the government to abiding by its findings.
"If their (the ICB's) recommendation unambiguously proves that further regulatory action is required, possibly hiving off high-risk banking activities from low-risk banking activities, of course we're duty-bound to look at that very closely indeed," he told Reuters in an interview this month.
Meanwhile, the enduring public anger over the banking crisis means Prime Minister David Cameron's Conservatives will want to be seen to be doing something tough, making any hint of a cosy early agreement with the banks and commission almost impossible.
If past independent reviews and commissions are anything to go by, Chairman John Vickers will come out of the process with a tough sounding report that leaves just enough wiggle room for the government to hammer out a mutually agreeable compromise.
"ABSOLUTE WAR"
"My guess is that inevitably those who are most concerned about the banks' behaviour will be most disappointed by it (the review)," said Justin Fisher, politics professor at Brunel University.
"The thing about reviews is that they almost always disappoint those who are pressing for them ... It's almost inevitable that there needs to be compromise," Fisher said.
Analysts believe it may also be too late for the government to broker a compromise between the banks and the commission before the interim report is published on April 11, particularly given reported earlier threats by members of the commission to resign if the government tries to interfere with their work.
The end result then is likely to be a strongly-worded report next month, containing a range of options and the odd explosive element, followed by months of wrangling.
"Is there likely to be some element of a ridiculous and unworkable proposal? Yes. Will the market get upset about it? Yes. But will what actually transpires be more sensible? Yes," said Ian Gordon, banking analyst at brokerage Exane BNP Paribas.
Without an early peace deal -- or at least assurances that September's report won't be too onerous -- banks will spend the next six months lobbying to water it down while the commission digs in its heels for fear of losing face.
"If that is the case we're going to go into an absolute war for six months between the banks and the commission," said Chris Wheeler, banking analyst at Italian investment bank Mediobanca.
It is also difficult to see how an early peace deal might be reached, given that the banks say they have no idea what is in the interim report and do not expect to have sight of it until an hour before publication.
"SHARED INTENT"
The latest spat comes hard on the heels of a public falling-out between the government and the banks over the Project Merlin deal on bonuses and lending, which opposition politicians labeled toothless and one business group described as no more than "great political theatre".
Then as now, warnings abounded that too harsh a system would damage the City of London's attractiveness as a place to do business, before a last minute deal.
Analyst Gareth Hunt at brokerage Investec said there was a sense of deja vu in the rhetorical tussles ahead of the commission's report but that potentially the most damaging thing was a lack visibility over the future shape of British finance.
"It should all have been resolved by now," said Hunt. "The uncertainty is very damaging. A little bit of clarity will go a long way to helping the sector." Britain is not the only place, however, where banks are squirming in the face of a tougher regulatory regime. Just this week Jamie Dimon, chief executive of JPMorgan Chase, attacked proposed U.S. rules on bank capital, saying they risked "putting the nail in our coffin for big American banks."
If Project Merlin and other deals done during the credit crisis teach anything, it is that after intense lobbying by the banks and tough talking by governments and regulators, they will in the end reach a mutually agreeable deal.
Or as former Barclays Chief Executive John Varley put it, the Merlin deal demonstrated "shared intent" and "new collaboration" between banks and government. (Additional reporting by Sudip Kar-Gupta; Writing by Paul Hoskins; Editing by David Holmes)