UPDATE 1-Britain's bank 'ring-fencing' rules need simplifying, review shows

(Recasts with more detail, background)

By Huw Jones

LONDON, Jan 19 (Reuters) - Capital rules imposed on
Britain's high street banks after bailouts during the global
financial crisis have not harmed competition but may need
simplifying, a government-sponsored review said on Wednesday.

Since January 2019, banks like HSBC, Lloyds, NatWest and
Barclays with deposits of 25 billion pounds ($34 billion) or
more have been required to hold extra capital around their
retail divisions to insulate them from any blow-ups in separate
trading and investment operations.

The so-called ring-fencing regime was introduced after
Britain's taxpayers had to bail out several undercapitalised
banks during the 2007-09 financial crisis.

"The ring-fencing regime has had no significant impact on
competition in retail banking or its submarkets," the review,
commissioned by the finance ministry, said in an interim
statement.

"The current rules have resulted in unintended consequences
that create unnecessary rigidity for customers, banks, and
regulators."

Banking lobby UK Finance https://www.reuters.com/business/finance/dismantle-ring-fencing-rules-safeguard-competitiveness-say-britains-banks-2021-10-01
said last year that Britain should consider dismantling the
regime or risk harming post-Brexit competitiveness.

"The ring-fencing regime has the potential to constrain the
competitiveness of UK banks, but to date this impact has not
been substantial," the review statement said.

The review, chaired by finance industry veteran Keith
Skeoch, signalled in its statement that later this year it would
recommend increasing flexibility in the rules to reduce
unnecessary complexity, rather than any radical surgery.

The Bank of England's head of banking supervision, Deputy
Governor Sam Woods, has vowed to defend the ring-fencing rules
to his last drop of blood as banks lobbied for the 25 billion
pound threshold to be raised.

Goldman Sachs closed https://www.reuters.com/article/britain-goldmansachs-marcus-idUKL8N2DM1FF
its easy access saving business in 2020 to new customers in
Britain after deposits surged close to the 25 billion threshold
that would force it to comply with the ring-fencing rules.

Banks have warned that ring-fencing has triggered unfair
competition in mortgages as banks inside the ring-fence use
deposits to fight for more market share.

The evidence suggests that ring-fencing has not damaged
competition in consumer credit, small business lending or
mortgages, the review said.

The review said the ring-fencing rules have helped to
bolster financial stability, though these benefits have not been
observed for smaller and less complex banks which don't have
investment banking operations.

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

Banks have separate rules on resolution, or procedures for
winding themselves up in a crisis without needing taxpayer
bailouts, and the review said these rules coupled with
ring-fencing added complexity to regulation.

($1 = 0.7350 pounds)
(Reporting by Huw Jones, Editing by Louise Heavens and Angus
MacSwan)