Lloyds: we are too vital to fail

LLOYDS chief Antonio Horta-Osório is lobbying for reforms that would see most of his bank rescued again in the event of another financial crisis.

The CEO said yesterday that Lloyds performs “key economic functions” that should be inside any retail ringfence the government introduces.

Horta-Osório spoke recently in support of the Independent Commission on Banking’s (ICB) proposal for a firewall around retail banks.

But yesterday was the first time that he has argued for a “broad” ringfence that would protect most of his bank.

He said that under the ringfence model he favours: “Given that Lloyds is mainly a retail and commercial bank, concentrated in key economic functions – payments, deposits, the flow of credit to the economy – it would be mostly inside the ringfence.”

In a crisis, the ringfence would help the state to “resolve” a failing bank, determining which parts were vital and must be propped up, and which could be cut loose. Most of Lloyds, its chief says, should fall into the first category.

City A.M. also understands that Lloyds was not included on the Basel Committee’s draft list of systemically important financial institutions (SIFIs), which means it could escape an international capital surcharge.

Its exclusion from the list explains why UK regulators are so anxious to be allowed to gold-plate Basel standards: they want to designate Lloyds a national SIFI, so that it will in fact have to meet a ten per cent capital ratio.

Lloyds is working to a ten per cent capital ratio and has stressed that it supports new capital and liquidity rules to prevent failure, intending to become a “boring, low-risk” bank.