Dear banks: ringfencing is here to stay

Date:

Ring fencing is not unpopular. It just looks like no one likes it very much.

Industry feedback on the rules demanding UK lenders with more than £ 25 billion in deposits to separate the consumer business from the more lacy investment banking business “provided evidence of the positive impact of the ring fencing regime. Was almost or not at all “was included.Until you confirm the policy Said last year..

But this is not a popular contest. And, of course, Post-crisis department It is designed to help policy makers deal with bankrupt banks and is likely to continue.

Indeed, this is based on the reading of regulated tea leaves.This week’s review panel has released a short Provisional statement, Prior to the final recommendation submitted to the Treasury later this year. But it’s enough to understand where this will land.

It is worth looking back at how the zeitgeist of regulation has changed. In the aftermath of the financial crisis, the promotion of independent reviews was part of the so-called electrification of ring fences. Andrew Tylie, Chairman of Parliamentary Commission on Banking Standards, I wrote in this paper In 2013, “All history shows that banks are on the ring fence like foxes in poultry farms, unless the banks are motivated to do so.”

A threat was introduced that if banks turned the system into a game, a complete glass-Steagall-style split of retail from investment banks could be imposed on the sector.

This review has always aimed to have broader authority, but found no evidence that banks abused ring fences.But the background has certainly changed: awkward regulation Undermine Britain’s competitiveness I’m back in fashion. And this view of how ring fencing affected the banking market was lobbying for abolition or overhaul that helped policymakers convince policy makers that electrification was needed 10 years ago. It was accompanied by a type.

Still, the panel behind the review is headed by Keith Skich, a former Standard Life Aberdeen boss. Made a short savings To the sector’s most common complaints: in particular the idea that policies have locked liquidity inside the UK fence, or that this has supercharged competition in the mortgage market. Other factors explained surplus liquidity, a global banking phenomenon, he said.

In the face of it, interim findings suggest two broad areas for change. The first is how the regime works here and now. Some of the system’s biggest proponents personally admit that it’s actually more robust and unyielding than it was intended. This is in part the result of banks choosing to enact rules. The details are very important, but you can reduce unnecessary costs and make your regime more flexible without compromising the basic idea.

The second is whether the regime needs to be improved or renewed to better address the goal of resolving major obstacles and protecting future financial stability. The panel said that ring fencing could limit the competitiveness of British banks, but it was not yet meaningful. He also showed discrepancies between ring fencing rules and the development of other regulations, such as the definition of services that are important to the economy under the resolution regime. This suggests a full-scale policy decision on how or should regulatory systems intended to function as allies be coordinated.

Being a bugbear in the mood music, especially Goldman Sachs’ retail deposit collection efforts, that even if the regulatory pendulum is in the industry’s favor, any shortcomings may not require a change to the £ 25bn cap. Is amazing. And while reviews show that the rules actually created a more resilient sector, small, uncomplicated banks with “restricted investment banking operations” may have room for tweaking. there is.

Defining it will undoubtedly be another target for sector lobbying. But with a system that is concerned about financial stability and is too big to fail, it makes sense, at least to some extent.

helen.thomas@ft.com
@helentbiz

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