Next week, the UK government will unveil plans to loosen the bank ring-fencing rules that were introduced after the 2008 financial crisis. The Treasury is expected to propose changes that reduce the requirements for large banks to separate their retail operations from riskier investment banking activities. The move is part of a broader post-Brexit effort to make the City of London more competitive.
How ring-fencing works
Under current rules, banks with more than £25bn in core deposits must ring-fence their retail banking services into a separate legal entity. That structure was designed to protect everyday savers and the payments system from losses in investment banking. The reform came out of the Independent Commission on Banking, led by Sir John Vickers, and was fully implemented by 2019.
Why the government is easing the rules
The UK's departure from the EU gave regulators the freedom to diverge from European standards. The Treasury has argued that the current ring-fencing regime is overly burdensome and puts UK banks at a disadvantage compared to global competitors. Looser rules are intended to free up capital and allow banks to compete more effectively, especially in international markets. The government has also said the changes will support the UK's ambition to remain a leading financial centre.
What the changes could look like
Details are still under wraps, but reports suggest the government will raise the threshold for ring-fencing, potentially to £35bn in deposits. That would remove the requirement for several mid-sized banks. The rules around what activities can be carried out inside the ring-fence may also be relaxed. However, the core protections for retail customers are expected to remain in place.
The Treasury will release the proposals next week. Banks and consumer groups are expected to respond once the details are published.
