S&P: Impact of Bank of England and Prudential Regulation Authority's ring-fencing on UK banks' credit rating "limited"

Jessica Morris
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The BoE is forcing big banks to separate their retail and investment divisions (Source: Getty)

Credit ratings agency Standard & Poor's (S&P) has said today that ring-fencing regulations will have a "limited" effect on one of the factors used to determine a big bank's credit rating.

Yesterday, the Bank of England's Prudential Regulation Authority outlined proposals for how big banks should separate their retail banks from their riskier investment arms. It's designed to help protect a bank's retail operations, which are critical to the functioning of the economy, in the event of a company-wide crisis.

But S&P thinks that the regulations will have a "limited" impact on a bank's group credit profile, which is an assessment of the wider groups' credit worthiness, and a component of each individual member's credit rating.

Read more: New ring-fencing rules "could cost banks five per cent" of their operating budget

"While their final group structures remain to be seen, our current view is that the effect of ring-fencing on the banks' group credit profiles (GCPs, which feed into the ratings assigned to entities within the group) will likely be limited," S&P said.

"That said, there could be diverse rating outcomes for entities within each banking group, reflecting the relative risks of each ring-fenced and non-ring-fenced entity and the potential need and ability of the group to transfer resources across the ring-fence."

A previous report by S&P said the credit ratings of Britain's biggest banks could be hurt by ring-fencing rules, due to limits on their ability to share funds, capital and other resources across the company.

Ring-fencing rules are due to come into force in 2019.

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