British rules on “fencing” banks need to be simplified, Reuters shows

By Huw Jones

LONDON (Reuters) – Capital rules imposed on Britain’s major banks after a bailout during the global financial crisis have not harmed competition, but may need to be simplified, according to a government-sponsored review on Wednesday.

As of January 2019, banks such as HSBC, Lloyds (LON :), NatWest and Barclays (LON 🙂 with deposits of £ 25 billion ($ 34 billion) or more were needed to hold additional capital around its retail departments to isolate them from any explosions in separate trade and investment operations.

The so-called fencing regime was introduced after British taxpayers had to bail out several undercapitalized banks during the 2007-09 financial crisis.

“The fencing regime did not have a significant impact on competition in retail banking or its sub-markets,” a transitional statement said in a revision commissioned by the finance ministry.

“The current rules have resulted in unintended consequences that create unnecessary rigidity for customers, banks and regulators.”

The UK Finance banking lobby said last year that Britain should consider lifting the regime or risk damaging competitiveness after Brexit.

“The fencing regime has the potential to limit the competitiveness of British banks, but to date this impact has not been significant,” the review said in a statement.

The review, chaired by financial industry veteran Keith Skeoch, said in a statement that later this year it would recommend increasing flexibility in rules to reduce unnecessary complexity, rather than any radical operation.

The head of banking supervision at the Bank of England, Deputy Governor Sam Woods, has vowed to defend the fencing rules to the last drop of blood as banks lobby to raise the £ 25 billion threshold.

Goldman Sachs (NYSE 🙂 closed its easy-to-reach savings business for new clients in Britain in 2020 after deposits grew close to the $ 25 billion threshold that would force it to comply with protection rules.

Banks have warned that restricting mortgages has caused unfair competition in mortgages as banks inside the fence use deposits to fight for higher market share.

Evidence suggests that the restriction did not harm competition in consumer credit, small business lending or mortgages, the review said.

The review states that the constraint rules have helped strengthen financial stability, although these benefits have not been observed for smaller and less complex banks that do not have investment banking operations.

Woods has already announced plans for simpler rules for smaller lenders.

Banks have separate rules for resolving or resolving the crisis without the need to rescue taxpayers, and the review said those rules, along with the limitation, added complexity to the regulation.

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