LONDON, Dec 9 (Reuters) - The credit ratings of Britain'sbig banks could be hurt by plans to force them to separate theirdomestic retail banking operations, while costs for customerscould rise, Standard & Poor's said on Tuesday.
The Bank of England is forcing lenders to set up a boundaryaround their high-street operations in an effort to protecttaxpayers from needing to bail them out if a problem emerges inriskier investment banking activities.
Big banks must separate - or "ring-fence" - their domesticretail businesses by 2019, and they have to submit preliminaryplans next month.
Ratings agency S&P said banks were likely to pass many ofthe costs of the separation on to customers, and that creditsupply could be squeezed.
"More expensive banking services and less freely availablecredit may well be the price of having more resolvable banks,"S&P credit analyst Osman Sattar said in a note.
S&P added the ring-fencing rules "will undoubtedly furtherconstrain fungibility", or how much funds, capital and otherresources can be shared across a bank.
"The sharing of resources (and brand, expertise, andeconomies of scale) means we view most banking groups as beingmore than the sum of their parts," the report said.
It said disrupting these benefits could lead S&P to have aweaker view of the group as a whole and to lower its creditratings on some parts of the banks.
S&P said the complexity of separating functions "representsa significant operational challenge" for banks at a time ofmultiple other regulations.
The agency warned that ring-fencing could negatively affectearnings. The initial set-up costs could be substantial, andprofits could be eroded in future if operating margins acrossthe group were hurt by extra compliance and reporting costs andthe duplication of some functions, S&P said.
The bank's funding and liquidity were also likely to benegatively affected, it said. (Reporting by Steve Slater; Editing by Pravin Char)