The need to "ring fence" retail banks ? That ship has sailed ......

28th April 2015

 

The need to "ring fence" retail banks ? That ship has sailed ......

"An outdated ring fence that will starve City finance" , OPINION / Simon Samuels, The Financial Times, p.13

Ever since the banking crisis, it would have been tough to find any public figure concerned with his or her popularity ratings arguing the case against ring fencing retail banks, Still now, and despite the protestations of many in the banking industry, your average man in the street would find the idea of insulating his savings in his high street bank from the excesses of profit-crazy, bonus-chasing traders (as he might see it) in that same bank's investment arm an eminently sensible idea. Not so, says Simon Samuels, who argues that view may always have been questionable and is now dangerously outdated.

He points out that Northern Rock and Bradford and Bingley were two of the first to go down, and neither had an investment banking arm. Moreover, RBS and HBOS between them lost £70bn (out of £91bn) in traditional bank loans, particularly in real estate, of the type that would still remain inside a ring fenced bank. More to the point, Mr Samuels lists the numerous capital buffers and regulations imposed by the Independent Commission on Banking (ICB) and suggests that even if they were appropriate at the time are now too onerous in a financial landscape that looks less like a casino. UK banks are the only ones forced to implement ring fencing, and that other safety measures introduced by the EU for example supersede those laid down by the ICB, which still have to be maintained. All of which makes UK banks less competitive and contributes to the desire of some (like HSBC, for example) to relocate  --  bad for banks, bad for the City, and ultimately even bad for retail consumers.

It's a view that would not necessarily meet with universal agreement. In the banker-bashing climate still broadly prevalent in the UK, it holds no political attraction whatsoever and the argument is likely to remain an academic one for some time.