LEADING British businesses have written to the government to oppose plans to make banks split their retail and investment banking arms, it was reported yesterday.
The firms are believed to be concerned about the effect such a move will have on the availability of hedging products.
Relevant legislation is currently in the final stages of its journey through parliament but The Sunday Telegraph claimed that 30 unnamed corporations have pleaded with the government to include hedging products within the ringfenced retail bank.
The firms believe their businesses would find it harder to access the products – which help cover against adverse changes in areas such as foreign exchange rates or inflation – if they are only available from a separate investment banking unit.
Putting the products outside the ringfence would add costs for corporations because they would be dealing with a supposedly riskier entity.
The proposals, due to be implemented by 2019, were set out in Sir John Vickers’ Independent Commission on Banking.
But the government remains concerned about putting such products in the supposedly safe part of a bank, for fear of a catastrophe.
For example, a substantial rise in interest rates could endanger the financial stability of banks if they sold too many hedging products against such an eventuality – even if they were within the ringfence.
The government is also keen is to avoid ringfenced banks offering complicated hedging products to small firms that do not fully understand what they are signing up to.