Santander fed up with ringfencing

Ignore the whingeing. That was the trenchant advice of a lead architect of Britain’s post-crisis financial regulation four years ago.

Complaints over ringfencing of UK retail banks were predictable. Brexit, ultra-low interest rates and cut-throat competition were harder to foresee.

Santander has decided to take a €1.5 billion ($2.6b) writedown on its UK operations. It is a sign of the malaise enveloping the sector.

Ringfencing was meant to make banking safer. Critics say it has increased cost, complexity and competition. It has sparked a price war in the mortgage market. Barred from using retail deposits to fund investment banking, banks have lent more to UK house owners.

HSBC, which has tens of billions of pounds in surplus liquidity in the UK, has made a splash. Santander UK, which has an 11.2 per cent share of the mortgage market — more than HSBC — has hit back with the lowest five-year fixed-rate remortgage deal on the market.

The UK bank has already pruned its branch network but accounts for 40 per cent of a €1b Europe-wide cost reduction target. Santander’s executive chairman Ana Bot´ın describes the UK as “critically important”.

Ringfencing reduces the utility of the UK arm. Besides, it is an overengineered solution, say critics. As capital requirements have risen globally, there is less need to isolate retail deposits.

When it comes to bank regulation, there are better ways to achieve the same result.