Chancellor Rachel Reeves has been cautioned by prominent City figures against weakening bank ringfencing rules, amid concerns that such a move could increase financial risks without benefiting households. In a speech at the Mansion House dinner on Tuesday, Reeves argued that regulation was acting as a “boot on the neck of business” and pledged reforms to stimulate economic growth.
Sir John Vickers, architect of the ringfencing regime introduced after the 2008 financial crisis to separate retail banking from riskier investment activities, described any wholesale retreat from the reforms as a “very bad idea”. Lord Turner, former chair of the Financial Services Authority during the crisis, urged the chancellor to proceed with caution, noting that the costs of getting it wrong far outweigh any gains from loosening requirements.
Lord Tyrie, who chaired the post-crisis parliamentary commission on banking standards, said it would be “imprudent” to scrap ringfencing after banks had invested heavily in separating their activities. He warned against succumbing to lobbying, cautioning that watering down the rules in the belief it would unlock higher growth would be a serious misjudgment.
Reeves has committed to a review of the safeguards, aiming to balance financial stability with economic growth. However, the Bank of England governor, Andrew Bailey, wrote to MPs last month arguing that removing the ringfence would negatively affect UK lending, directing retail deposits away from households and businesses. Vickers echoed this, stating that rolling back the reforms would not aid the UK growth objective and would increase risk for no benefit.
The Treasury said it would work with the Prudential Regulation Authority to consider if ringfenced banks could offer more products, while Lord Turner stressed that the fundamentals of the post-crisis reforms must remain the bedrock of UK regulation.
