Dismantle 'ring-fencing' rules to safeguard competitiveness, say Britain's banks

By Huw Jones

LONDON, Oct 1 (Reuters) - Britain should consider
dismantling the mandatory ring fencing of capital for retail
banking introduced in the aftermath of the global financial
crisis or risk harming post-Brexit competitiveness, a banking
lobby group said on Friday.

The requirement for banks with deposits of 25 billion pounds
($34 billion) or more to cushion their retail divisions with
extra capital was a core reform after the 2007-09 financial
crisis, when taxpayers injected billions to steady lenders such
as Royal Bank of Scotland, now rebranded NatWest.

The ring fencing rules aim to shield depositors from any
blow-ups in a bank's separate trading operations.

Britain launched a review of the ring fencing rules in
April, though Bank of England Deputy Governor Sam Woods has
vowed to defend them to his last drop of blood.

UK Finance, which represents banks such HSBC,
Lloyds and Barclays, said much had changed
since the financial crisis, with banks holding far more capital
and liquidity, rendering ring-fencing "surplus to requirement".

The rules add to complexity and costs, which could undermine
the sector's competitiveness, UK Finance said in its response to
the review, which is due to report back next year.

There should be a "root and branch" assessment of the
purpose, design and operation of ring fencing, taking account of
its original objectives, the benefits and adverse and unintended
consequences, UK Finance said.

"We would ask the review panel to consider dismantling the
regime should there be evidence to suggest that costs outweigh
the benefits," it said.

No other country has introduced such a "gold-plated" regime
for banks, which demonstrated their resilience to market shocks
last year when pandemic lockdowns unfolded, UK Finance said.

At the very least, significant amendments were needed, such
as a higher threshold for triggering ring-fencing, it said.

"We recommend that the review panel explore the Swiss
equivalent regime which has the overall economic and competitive
aspects of the region as its primary basis supported by a strong
capital, liquidity and regulatory framework," UK Finance said.
($1 = 0.7410 pounds)
(Reporting by Huw Jones; Editing by David Clarke)