Hunt urged to transform ringfencing regime which puts UK at ‘disadvantage internationally’
Chancellor Jeremy Hunt has been urged to reform the ringfencing regime “as quickly as possible” as UK Finance submitted proposals ahead of the Spring budget.
In a list of proposals submitted today, UK Finance, the industry body, said “the current ringfencing regime puts the UK at a disadvantage internationally, as well as trapping liquidity and inhibiting competition in the banking sector.”
Ringfencing separates a bank’s investment banking division from its retail with the intention of protecting the core retail division from shocks originating elsewhere. It covers banks with more than £25bn of deposits.
Under the Edinburgh reforms, the government proposes to lift the threshold at which ringfencing applies to £35bn.
UK Finance said the proposed £35 billion threshold for ring-fencing “would not generate incremental systemic risk.”
Alongside increasing the ring-fencing thresholds, UK Finance said the overall regulatory regime should be “streamlined” by linking the ringfencing and minimum requirement for own funds and eligible liabilities (MREL) thresholds.
MREL requirements determine the minimum amount of funds a bank must hold to meet resolution requirements.
In a recent Treasury Committee hearing, John Vickers and Keith Skeoch said UK’s retail banks were “undoubtedly safer” and faced lower funding costs due to the ringfencing regime.
UK Finance also called on the Chancellor to set out a “tax roadmap”, which would include plans to remove bank corporation tax surcharge and the bank levy, and to set out plans to green the UK’s housing stock.
The Chancellor will deliver the Spring budget on 15 March. He is not expected to unveil any radical measures, delaying any tax cuts until after the next election.