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16th August 2011

Delay for UK bank ring fencing rumoured

Various British newspapers suggest that George Osborne, concerned at the impact of potential proposals for ring-fencing of retail banking capital is likely to allow a long build up period, potentially up till 2019. In June of this year he gave support for the principle of ring fencing and so cannot easily turn against the principle now. Vince Cable, Business Secretary, and a long-standing and vociferous campaigner for banking reform is said to be dismayed at the rumour and is active in trying to build support for much faster introduction.


The proposal that UK universal banks would have to hold separate capital for its retail operations that could not be used for investment banking and other capital market purposes was proposed in the preliminary paper from the Independent Banking Commission. The final paper is due to be published next month and the rumour is that the Commission has strengthened its proposals on this matter.


Banks point to the fact that proposals effectively requiring them to hold more capital are proposed at a time they are already having to increase capital for Basel III, and remembering that well over 90% of UK retail banking is controlled by SIFI designated banks meaning that they will have to achieve higher levels of Core Tier 1 capital than smaller banks. A second concern is that what constitutes retail banking is very difficult to define and likely to lead to cumbersome and confusing legislation. Another worry is that traditionally retail banking has gathered funds cheaply which are then used by the Capital arms to make the significant profits. An ending to this for British banks could put them at a competitive disadvantage.