England (Commonwealth Union)_ As part of government ambitions to deregulate the City of London and spur a post-Brexit second big boom for financial services, ministers are contemplating loosening regulations put in place to stabilize the banking system following the credit crunch.
In accordance with the ringfencing restrictions, which the UK unilaterally enacted in the aftermath of the 2008 global financial crisis, lenders must keep their high street operations apart from other businesses like investment banking or worldwide operations. The biggest banks in the UK, like Barclays and HSBC, would continue to be ringfenced under the proposed changes, but smaller lenders, like TSB and Santander UK, might not be required to do so.
In order to gradually release some of the cash that has been trapped behind the ringfence, the UK can be made a better location to be a bank, according to Andrew Griffith, the economic secretary to the Treasury. Since January 2019, UK banks with core deposits of more than £25 billion from retail consumers and small companies, including HSBC, Lloyds, NatWest, and Barclays, have been required to retain extra capital to enable them to absorb any future losses in other activities. To safeguard retail banking and customers from potential shocks from other, riskier business operations, the UK government implemented the ringfencing laws.
“We can make the UK a better place to be a bank, to release some of that trapped capital over time around the ringfence,” Treasury economic secretary Andrew Griffith said at a Financial Times banking summit. The measures were intended to prevent the need for another taxpayer-funded bailout of the banking system in the future, but detractors claim that forcing smaller lenders to hold reserves in different parts of the bank to cover potential future losses is discriminatory.
The capital requirements placed on Britain’s high street banks were found to have not harmed competition but may need to be simplified, according to a government-sponsored review of such ringfencing arrangements conducted at the beginning of this year and chaired by Standard Life’s Keith Skeoch.
