Bank break-up an op­tion if ring-fence fails: Vick­ers

The Pak Banker - - Front Page -

LON­DON: Bri­tain could force banks to fully sep­a­rate their re­tail op­er­a­tions from riskier ar­eas if lenders fail to im­ple­ment a “ring- fence” that suf­fi­ciently safe­guards tax­pay­ers or im­proves be­hav­iour, the ar­chi­tect of the plan said on Tues­day.

John Vick­ers headed up the In­de­pen­dent Com­mis­sion on Bank­ing (ICB), which rec­om­mended UK banks shielded or “ringfenced” their re­tail op­er­a­tions from riskier in­vest­ment bank­ing ac­tiv­i­ties but stopped short of ad­vo­cat­ing a to­tal sep­a­ra­tion.

Vick­ers told MPs that he cur­rently saw no need for a full break- up, say­ing it would be ex­pen­sive and might not pro­duce any pos­i­tive ben­e­fits. How­ever, he said the op­tion should be kept “in re­serve” to help en­sure the plan works.

“If the in­dus­try turned out to be un­re­formable then it’s pos­si­ble that to­tal sep­ara- tion would turn out in due course to be the bet­ter step to take,” Vick­ers told the Par­lia­men­tary Com­mis­sion on Bank­ing Stan­dards on Tues­day.

For­mer Bar­clays head Martin Tay­lor, who coau­thored the ICB re­port, told the com­mis­sion last month that banks could leave Bri­tain if they were asked to im­ple­ment a full sep­a­ra­tion.

HSBC chair­man Dou­glas Flint last week told the in­quiry his bank had de­ferred a de­ci­sion on whether to leave Lon­don un­til it had cer­tainty over fu­ture reg­u­la­tion.

Do­minic Grif­fiths, head of the bank­ing and fi­nance group at law firm Mayer Brown, said the threat of a full break-up was un­nec­es­sary. He said the gov­ern­ment should stick to his rec­om­men­da­tion that larger UK re­tail banks should be pre­vented from lever­ag­ing their cap­i­tal by more than 25 times. The gov­ern­ment is plan­ning to set the so-called “lever­age cap” at 33 times.

“A work­able and ro­bust ring fenc­ing sys­tem can be cre­ated within the ex­ist­ing fi­nan­cial and bank­ing sec­tor,” he said.

Vick­ers also said he was con­cerned the gov­ern­ment had wa­tered down his rec­om­men­da­tions and should im­pose stricter rules on banks’ fund­ing re­quire­ments.

He said the gov­ern­ment should stick to his rec­om­men­da­tion that larger UK re­tail banks should be pre­vented from lever­ag­ing their cap­i­tal by more than 25 times. The gov­ern­ment is plan­ning to set the so-called “lever­age cap” at 33 times.

Vick­ers said Bri­tain was “a quar­ter or a third along” its path to re­form­ing the struc­ture of the bank­ing in­dus­try, and when tougher cap­i­tal, liq­uid­ity and other changes come in in­dus­try will be “about 80 per­cent” through its re­form agenda.

Most of Vick­ers’ pro­pos­als are set to be in­tro­duced, but some are not or have been ad­justed. He raised five ar­eas that dif­fered from his pro­pos­als, no­tably the lever­age cap.

He said sim­ple de­riv­a­tives prod­ucts such as in­ter­est rate and for­eign ex­change risk man­age­ment prod­ucts for small busi­ness cus­tomers should not be al­lowed within the re­tail arms. “If the in­dus­try turned out to be un­re­formable then it’s pos­si­ble that to­tal sep­a­ra­tion would turn out in due course to be the bet­ter step to take,” Vick­ers told the Par­lia­men­tary Com­mis­sion on Bank­ing Stan­dards on Tues­day.

Draft UK leg­is­la­tion last month failed to give clear guid­ance on which ac­tiv­i­ties a ring-fenced bank will be al­lowed to en­gage in. Vick­ers told the Par­lia­men­tary Com­mis­sion on Bank­ing Stan­dards on Tues­day.

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