UK (Parliament Politics Magazine) – Chancellor Rachel Reeves expresses willingness to reconsider ring-fencing regulations after bank leaders call for changes to boost economic growth.
As reported by Sky News, Rachel Reeves signalled openness to changing ring-fencing rules after a strong campaign by banks seeking to ease post-2008 financial crisis controls.
Last week, Ms Reeves sent a letter to the CEOs of four of Britain’s largest banks. She acknowledged their belief that changes to ring-fencing, which separate investment and retail banking, “have not gone far enough.”
What did Rachel Reeves tell bank CEOs about reforming ring-fencing?
Rachel Reeves told the CEOs of HSBC Holdings, Lloyds Banking Group, NatWest Group, and Santander UK,
“As I have said previously, I am open-minded about the case for further reform. My officials are considering the issues you have raised and will reach out to your teams to discuss further.”
She stated,
“Banking is at the heart of the UK’s financial services sector and plays a vital role in supporting growth across the UK economy and will be crucial to the success of the government’s industrial strategy.”
Ms Reeves added,
“If we want the UK to grow, we need a thriving banking sector and creating the right environment for that is a top priority for me.”
In her letter, she told bank leaders that the Treasury is committed to
“new growth-focused remits for regulators and is reviewing how post-crisis regulations can be rebalanced to ensure they are proportionate, managing risk rather than eliminating it.”
However, Ms Reeves’s reply did not confirm plans to end ring-fencing. But sources within the industry say the Treasury now accepts that reform is necessary for a system that took billions to establish.
What did the UK’s top bank chiefs urge Chancellor Reeves to reform?
Britain’s four major bank chiefs outlined their concerns to Ms Reeves in a joint letter, stating,
“With global economic headwinds, it is crucial that, to support its Industrial Strategy, the government’s Financial Services Growth and Competitiveness Strategy eliminates unnecessary constraints on UK banks. This would allow them to better support businesses and send a strong signal to investors of your commitment to reform.”
They said,
“While we welcomed the recent technical adjustments to the ring-fencing regime, we believe it is now imperative to go further.”
They added in the letter,
“Removing the ring-fencing regime is, we believe, among the most significant steps the government could take to ensure the prudential framework maximises the banking sector’s ability to support UK businesses and promote economic growth.”
The letter said,
“Ring-fencing imposes significant and often overlooked costs on businesses, including SMEs, by exposing them to banking constraints not experienced by their international competitors, making it harder for them to scale and compete.”
In a joint appeal, the four banking bosses pressed the chancellor to use her speech at this summer’s Mansion House dinner to issue a firm commitment to scrapping ring-fencing before the end of the Parliament.
They stated, would
“demonstrate the government’s determination to do what it takes to promote growth and send the strongest possible signal to investors of your commitment to the City and to strengthen the UK’s position as a leading international financial centre.”
What does ring-fencing reform mean for the future of UK banking?
According to Royal Bank of Canada experts last week, scrapping ring-fencing could benefit the affected banks by up to £2.5 billion. This gain would come from reduced funding costs in their wholesale banking operations.
It said NatWest is expected to benefit the most from the reform. The government’s ownership in NatWest has fallen below 1%, a recent filing shows, a sharp decline from the over 80% held after the £45.5bn rescue.
Treasury plans successor appointment for Sam Woods
Sam Woods is the CEO of the UK banking regulator, the Prudential Regulation Authority. He played an important role in developing proposals released by the Independent Commission on Banking in 2011. The commission was led by Sir John Vickers.
The Treasury is preparing to appoint a successor to Mr Woods as his second term concludes next year.
Types of ring-fencing
- Financial Ring-Fencing
- Cybersecurity Ring-Fencing
- Legal/Regulatory Ring-Fencing
- Corporate Ring-Fencing