FSA’s Bailey says banks should be forced to ring-fence retail

City A.M. Reporter
BRITAIN’S banks should be forced to fully separate their retail arms from investment banking operations if they try to circumvent new rules designed to protect the taxpayer, a top regulator warned.

Andrew Bailey, head of banking supervision at the Financial Services Authority (FSA), said banks should face the threat of being broken up if they fail properly to comply with proposals to ring-fence retail deposits from riskier activities.

He warned there is a risk that banks would try to “tunnel under” any ring-fence set for them.

“This is an industry which is tremendously innovative at thinking of ways to dress things up to look slightly differently,” Bailey told the Parliament Commission on Banking Standards.

MPs are debating what should be allowed inside the ring-fence and Adair Turner, the FSA’s chairman, said there was a case for retail banks to be allowed to sell simple derivative products to small companies.

“We can see some arguments why a relaxation might be legitimate,” he said.