Reeves “open-minded” on banks’ push for ring-fencing reform

Rachel Reeves, the chancellor, has advised financial institution bosses she is “open-minded” about reforming the business’s ring-fencing regime amid a concerted push to abolish essentially the most vital regulatory burden launched after the monetary disaster.

Sky Information has seen a letter despatched final week by Ms Reeves to the chief executives of a quartet of Britain’s greatest banks, through which she acknowledges their view that changes to ring-fencing – which creates a firewall between teams’ funding banking and retail operations – “haven’t gone far sufficient”.

“As I’ve mentioned beforehand, I’m open-minded concerning the case for additional reform,” the chancellor advised the CEOs of HSBC Holdings, Lloyds Banking Group, NatWest Group and Santander UK.

“My officers are contemplating the problems you’ve gotten raised and they’re going to attain out to your groups to debate additional.

“If we would like the UK to develop, we want a thriving banking sector and creating the best surroundings for that could be a high precedence for me.”

Whereas Ms Reeves’s response to the bankers stops in need of explicitly signalling a willingness to abolish ring-fencing, business sources imagine the Treasury now recognises that there’s a clear case for an overhaul of a system which price billions of kilos to arrange.

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Of the 5 banks topic to ring-fencing, solely Barclays has overtly argued in favour of its retention, with its rivals all arguing that the regime creates capital inefficiencies which inhibit lending into the British economic system.

The chancellor’s letter comes amid a push by her – together with the prime minister and enterprise secretary – to amend the remits of financial regulators to present them express development aims.

In current months, the Fee Methods Regulator has been scrapped and folded into the Metropolis watchdog, whereas the chairman of the Competitors and Markets Authority has been ousted amid issues in Whitehall that it was not sufficiently centered on development.

Ms Reeves advised the financial institution chiefs in her letter that the Treasury was prioritising “new growth-focused remits for the regulators and a dedication to have a look at how post-crisis regulation may be rebalanced to make sure it’s proportionate and managing moderately than eliminating danger”.

Her response will gas expectations that the chancellor will use her speech at July’s Mansion Home dinner to stipulate potential reforms to ring-fencing.

Final week, analysts at Royal Financial institution of Canada mentioned that scrapping ring-fencing would ship a profit to the affected banks of as a lot as £2.5bn, by lowering funding prices of their wholesale banking operations.

NatWest, mentioned RBC, can be the one greatest beneficiary of such a shake-up.

The push for reform comes at exactly the identical time as one other financially and symbolically necessary legacy of Britain’s banking disaster is about to vanish.

The federal government’s stake in NatWest is now under 1%, in line with a submitting final week, having stood at greater than 80% after the financial institution’s £45.5bn bailout.

The sale of the remaining stake is probably going as quickly as subsequent week primarily based on the present trajectory of share gross sales.

Of their joint letter to Ms Reeves, which was revealed solely final month by Sky Information, the quartet of financial institution chiefs advised Ms Reeves that: “With world financial headwinds, it’s essential that, in help of its Industrial Technique, the federal government’s Monetary Providers Progress and Competitiveness Technique removes pointless constraints on the power of UK banks to help companies throughout the economic system and sends the clearest attainable sign to buyers within the UK of your dedication to reform.

“Whereas we welcomed the current technical changes to the ring-fencing regime, we imagine it’s now crucial to go additional.

“Eradicating the ring-fencing regime is, we imagine, among the many most important steps the federal government may take to make sure the prudential framework maximises the banking sector’s capacity to help UK companies and promote financial development.”

Banks spent billions of kilos designing and establishing their ring-fenced entities, with separate boards of administrators appointed to every division.

Extra lately, the Treasury has moved to extend the deposit threshold from £25bn to £35bn, amid stress from a lot of faster-growing banks.

Sam Woods, the present chief government of the UK banking regulator, the Prudential Regulation Authority, was concerned in formulating proposals revealed by the Sir John Vickers-led Unbiased Fee on Banking in 2011.

Final week, Sky Information revealed that the Treasury is drawing up plans to recruit a successor to Mr Woods when his second time period ends subsequent 12 months.

Laws to determine ring-fencing was handed within the Monetary Providers Reform (Banking) Act 2013, and the regime got here into impact in 2019.

Along with ring-fencing, banks have been pressured to considerably improve the quantity and high quality of capital they held as a danger buffer, whereas they have been additionally instructed to create so-called ‘residing wills’ within the occasion that they bumped into monetary hassle.

Britain is the one main economic system to have adopted such an method to regulating its banking business – a truth which the financial institution chiefs say is now undermining UK competitiveness.

“Ring-fencing imposes vital and sometimes missed prices on companies, together with SMEs, by exposing them to banking constraints not skilled by their worldwide opponents, making it more durable for them to scale and compete,” the letter mentioned.

The 4 bosses known as on Ms Reeves to make use of this summer time’s Mansion Home dinner – the Metropolis’s annual set-piece occasion – to ship “a transparent assertion of intent…to abolish ring-fencing throughout this Parliament”.

Doing so, they argued, would “exhibit the federal government’s dedication to do what it takes to advertise development and ship the strongest attainable sign to buyers of your dedication to the Metropolis and to strengthen the UK’s place as a number one worldwide monetary centre”.

The Treasury has been contacted for touch upon Ms Reeves’s letter.