Britain's biggest banks are preparing to ramp up their arguments against government proposals to separate high street and investment banking, ahead of a new Bank of England consultation next month.
The banks have long criticised so-called ringfencing reforms, intended to separate retail banking operations from other investment practices.
The plans are designed to protect savers and taxpayers from any future crises in the financial sector, yet some lenders say that the ringfencing structure – set to go into effect in 2019 – would disrupt business practices and diminish directors’ accountability to shareholders.
With the Bank of England set to open a second consultation on the reforms within weeks, some senior banking figures are stepping up their efforts and are confident that they will get their way.
Senior executives believe that they have convinced Bank governor Mark Carney to dilute the details of the ringfencing scheme, the Sunday Times reported yesterday, indicating that Carney and the Bank of England’s prudential regulatory authority (PRA) may allow the retail and investment arms of large financial institutions to remain under one board, rather than the two separate entities initially proposed.
If Carney were to row back on ring-fencing, it would mark a major U-turn for the Bank governor, who told MPs on the influential Treasury Select Committee earlier this summer that ringfencing was an “important” part of the broader “too-big-to-fail” agenda.
Chancellor George Osborne also defended the policy before the committee, telling the MPs that he did not intend to allow a looser implementation of the rules.
Rejecting the suggestion that the Treasury itself would relax the reforms, Osborne said: “That’s not the case. These are decisions for the regulators”.
“Broadly speaking we should let a lot of this banking regulation settle down. I would include the ring- fencing legislation,” Osborne added.
Mark Garnier, a Conservative MP who sits on the committee, told City A.M. yesterday that he agreed with Osborne and was “reluctant to row back on ringfencing”.
“The one thing we know is that there will be a financial crisis in the future. What we don’t know is where it’s going to come from,” Garnier said.
“If we wind back on ringfencing, we’re going to end up creating the wrong environment for the next crisis,” he added.
Treasury sources insisted last night that the government remains committed to implementing the ring-fencing reforms, with the PRA and Financial Conduct Authority (FCA) oversight intended to iron out the details.
A Treasury spokesperson said: “The government has implemented the recommendations of the Vickers Commission through the Banking Reform Act 2013.
“These are part of the biggest reforms to Britain’s banks in a generation and will make the UK banking system stronger and safer so that it can support the economy, help businesses and serve customers.”