UK plans to relax ringfencing rules on banks to spark Brexit ‘big bang’
Ministers are considering relaxing rules brought in to stabilise the banking system after the credit crunch, as part of government plans to deregulate the City of London and spark a second big bang for financial services after Brexit.
The ringfencing regulations, introduced in the wake of the 2008 global financial crisis, require lenders to separate their high street operations from other activities such as investment banking or international operations.
Under the potential changes, Britain’s largest banks, such as Barclays and HSBC, would still be ringfenced, while smaller lenders, such as TSB and Santander UK, might be released from following the rules.
The economic secretary to the Treasury, Andrew Griffith, told a Financial Times banking summit: “We can make the UK a better place to be a bank, to release some of that trapped capital over time around the ringfence.”
Since January 2019, UK banks including HSBC, Lloyds, NatWest and Barclays, which have core deposits of more than £25bn from retail customers and small businesses, have been required to hold more capital to allow them to absorb future potential losses in other operations.
The UK government brought in the ringfencing requirements with the goal of protecting retail banking, and consumers, from shocks that might arise from other, riskier, business activities.
The measures were designed as ways to avoid another future taxpayer bailout of the banking system but critics have said the requirements to hold pots of capital in separate parts of the bank to cover any future losses were hurting smaller lenders.
A government-sponsored review of such ringfencing arrangements at the start of this year found the capital rules imposed on Britain’s high street banks had not harmed competition but might need simplifying.
Ministers’ proposed changes to ringfencing are part of its plans to reform the financial sector and get rid of what some proponents of Brexit consider unnecessary regulations after Britain’s departure from the EU.
The government has expressed its desire to trigger a second big bang for the City of London, repeating the wave of deregulation from 1986, which reshaped the capital’s financial sector into a global hub.
However, the government last week U-turned on its plans to introduce sweeping powers that would allow ministers to override regulators, including the Bank of England, after multiple warnings that such a move would harm the UK’s global reputation.
The powers would have given the government the ability to make, amend or revoke rules on matters that ministers deemed to be of “significant public interest” but the Treasury said it was no longer going to proceed with intervention powers.
Opposition MPs and senior officials, including from Britain’s central bank, had warned that the move would threaten the independence, and international reputation, of the UK and its regulators.