THE TREASURY is preparing to water down a key recommendation in the Vickers report that would protect savers in the event of a bank going bust.
Investors and banks have argued that Vickers’ suggestion that retail depositors should be paid back before all other creditors if a bank collapses could risk destroying the market for bank debt and cause corporate deposits to flee the UK.
The argument is one the Treasury finds convincing, according to sources familiar with its thinking.
The recommendation on “depositor preference” is therefore set to be dropped from the final version of Vickers implemented by the government, according to sources, on the grounds that savers with up to £85,000 in the bank are already protected by an industry-funded insurance scheme.
Giving retail savers additional protection would have minimal benefits and could result in corporates moving their money abroad and bond investors demanding more collateral as they are moved down the debt hierarchy.
City A.M. also understands that the Treasury is prepared to take a selective approach to the capital regime laid out in Vickers.
HSBC and Standard Chartered, the banks most likely to leave the UK, have lobbied against the requirement that they issue billions in bail-in bonds – bonds that can be written-down in the event of the bank’s collapse.
The measure would cost HSBC $2.1bn a year, its chief financial officer Iain Mackay said recently, which he added would be “too high” to justify staying in the UK.
The requirement could be dropped entirely for the non-retail side of banks that are outside Vickers’ recommended ring-fence, potentially in favour of setting rules individually with banks.
But if the European Commission does not release its guidance on bail-in bonds by Christmas, banks will get little detail from the Treasury in December when George Osborne makes a statement on Vickers.
The UK has not finalised its approach to the report in part because it is understood to be reluctant to produce a parallel set of rules on bail-in bonds tailored to Vickers when the EU is already debating the same topic. It could instead try to slot the two regimes together and use the EU rules to flesh out the more vague Vickers proposals.
The Treasury is also set to solicit views on how detailed its legislation should be in setting out the terms of the ring-fence or whether the details should be left to banks and regulators.
The Treasury declined to comment other than to reiterate that it meets with banks regularly to discuss policy.