Dismantle ‘ring-fencing’ rules to safeguard competitiveness, say Britain’s banks By Reuters
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© Reuters. FILE PHOTO – A dog and a woman are seen exercising near London’s City of London Financial District, London, UK, April 30, 2021. REUTERS/John Sibley/File photoHuw Jones
LONDON, (Reuters) – Britain must consider removing the compulsory ring fencing capital required for retail banking in the wake of the financial crisis. This would reduce post-Brexit competition.
Banks must have minimum deposits of 25 Billion Pounds ($34Billion) in order to protect their retail sections with additional capital. It was an essential reform following the financial crisis of 2007-09. When taxpayers invested billions into steady lenders such Royal Bank of Scotland, now rebranded NatWest.
Ring fencing is designed to protect depositors against any bank-separated trading losses.
Britain initiated a review of the rules of ring fencing in April. However, Sam Woods, Bank of England deputy governor has pledged to protect them until his last breath.
UK Finance is a representative bank of banks like HSBC and Lloyds (LON) Barclays (LON. ) Banks have more capital and liquidity than ever before the financial crisis. This has made ring-fencing “surplus of requirement”.
UK Finance stated that the rules increase complexity and cost, which can undermine sector’s competitiveness. It responded to the review. The UK Finance report will be available next year.
UK Finance suggested that there must be a root-and branch assessment of purpose, design, operation, and effectiveness of ring fencing. It should take account of original objectives as well the positive and negative consequences.
The panel stated, “We ask the review committee to reconsider the system if we have evidence that the costs exceed the benefits.”
UK Finance stated that no other country has created such a regime for banks. This demonstrated the bank’s resilience to market shocks in last year’s pandemic lockdown.
It stated that significant changes were required, including a lower threshold to trigger ring-fencing.
UK Finance stated that they recommend the Swiss counterpart regime be explored by the panel. This would have the regional economic and competitive factors as the primary base, supported by strong capital, liquidity, and regulatory structures.
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