Britain’s ring-fencing rules need to be simplified, Reuters shows

Author: Huw Jones

LONDON (Reuters) – Capital rules imposed on UK main street banks have not harmed competition in the wake of the global financial crisis, but may need to be simplified, a government-sponsored review said on Wednesday.

Since January 2019, HSBC, Lloyds (LON :), NatWest and Barclays (LON 🙂 They needed to have extra capital around retail divisions with deposits of $ 25 billion ($ 34 billion) or more to separate them from any breakdown in separate trade and investment operations.

The so-called ring-fencing regime was introduced after British taxpayers had to rescue several banks that had not been capitalized in the 2007-09 financial crisis.

“The current regime has not had much effect on the retail bank or its sub-markets competing,” the study commissioned by the Finance Ministry said in a provisional statement.

“Current regulations have had unintended consequences, creating unnecessary rigidity for customers, banks and regulators.”

The bank lobby UK Finance said last year that Britain should consider dismantling the regime or risking damaging post-Brexit competitiveness.

“The UK regime has the potential to reduce the competitiveness of UK banks, but so far this impact has not been significant,” the review statement says.

The UK Treasury said it was important to consider whether the benefits of affecting financial stability outweigh the costs, and hoped to end recommendations to improve results for clients by increasing the flexibility of the regime and reducing its complexity.

A review by financial industry veteran Keith Skeoch said in a statement that he would recommend increasing the flexibility of the rules over the course of the year to reduce unnecessary complexity, rather than a radical surgery.

The Bank of England’s chief banking officer, Deputy Governor Sam Woods, has vowed to protect them until his last drop of blood as banks lobby to raise the £ 25bn threshold.

Goldman Sachs (NYSE 🙂 closed its easy-to-access savings business in 2020 to new UK customers, after the deposit approached the 25 billion mark, forcing it to comply with ring rules.

Banks have warned that the ring has caused unfair competition in mortgages as banks within the ring use deposits to fight for more market share.

Evidence suggests that the ring has not harmed competition in consumer credit, small business loans or mortgages, according to the review.

The review said the austerity rules have helped strengthen financial stability, even though those benefits have not been seen for smaller and more complex banks that do not have investment banking operations.

Woods has already outlined plans for simpler rules for smaller lenders.

Banks have separate rules on the solution, or procedures for ending the crisis without the need for taxpayer bailouts, and the review added complexity to the regulation as well as limiting those rules.

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