Natwest and Lloyds to rake in millions from a ring-fencing shakeup
Natwest and Lloyds are set for a major cash bump if Chancellor Rachel Reeves rips up the ring-fencing regime imposed on lenders, fresh data shows.
FTSE 100 banking giants have lobbied the Chancellor to axe the system, which they described as a “drag on banks”.
The bosses of HSBC, Lloyds, Natwest and Santander slammed the regime as “redundant” and obstructing the firm’s “ability to support business and the economy” in a letter to Reeves in April.
New figures from RBC analysts reveal the banks are set for a significant payout if Reeves meets their calls.
The UK’s ring-fencing regime requires major banks to separate their retail banking operations from their investment banking activities. It was introduced in the wake of the financial crisis to ensure stability and mandated in the Financial Services Act 2013.
A “blue sky” scenario estimates a sector benefit of around £2.5bn. In a base case, savings top £1.5bn, with Natwest leading the pack as the biggest beneficiary.
Natwest would receive a £530m boost, “due to the larger funding cost gap between the ring-fenced back and non-ring-fenced back,” analysts Benjamin Toms, Anke Reingen and Pablo de la Torre Cuevas said.
The figure represents seven per cent of Natwest’s projected pre-tax profit for 2026.
Its domestic-focussed peer Lloyds would be set for £480m in annual savings.
Barclays and HSBC benefit to lesser degree
Meanwhile, HSBC and Barclays would “benefit, but to a lesser degree,” analysts said.
Barclays would be set to save £240m and HSBC £300m.
CS Venkatakrishnan, Barclays’ chief executive, broke from his FTSE 100 peers and launched a staunch defence of ring-fencing in April.
The banker told Sky News: “There are two counterpoints: we have spent the money on the set-up and we make it work; but the more important fact is that you have to weigh against this the immense amount of depositor protection that the ring-fencing regime gives the country,” he said.
He added: “I don’t think ring-fencing should be relaxed or scrapped.”
But banking rivals have repeated calls for an abolishment to the fifteen-year old regulation.
William Chalmers, Lloyds’ chief financial officer, said the debate on the ring-facing regime imposed on banks was an “important” topic amidst the “commitment that we all have to ensure that the UK gets back onto a growth trajectory.”
He added the implications imposed by the regime “makes it harder for us to serve, in particular, large customers, and in some cases, at least reduces our lending capacity.”
The Treasury has yet to make any statement on reforms to ring-fencing.