Chancellor Rachel Reeves has been cautioned by prominent City figures that her plan to reduce financial regulation could increase risks in the banking industry while offering little benefit to British households. In a speech at the Mansion House dinner, Reeves argued that regulation was acting as a “boot on the neck of business” and pledged sweeping changes to revive the economy.
Sir John Vickers, architect of the UK’s ringfencing rules introduced after the 2008 financial crisis to separate high street banking from riskier investment banking, said a wholesale retreat from the reform would be a “very bad idea”. Lord Turner, former chair of the Financial Services Authority during the 2008 crash, warned the chancellor to proceed with caution, stating that “the costs of getting it wrong far outweigh the gains”.
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 retail banking from riskier activities. He cautioned against “succumbing to lobbying in the misplaced belief that watering it down would somehow release the economy to a higher growth path”.
Reeves committed to “meaningful reform” of the safeguards, with the government reviewing the rules to balance financial stability and economic growth. However, Vickers argued that removing the ringfence would remove a layer of protection for everyday banking from global shocks, noting that “the damage to the UK… would have been much lower if we had such a regime in place” during the 2008 crisis.
Bank of England Governor Andrew Bailey recently warned that removing the ringfence could lead banks to direct deposits away from UK households and SMEs towards investment banking or overseas activities. The Treasury said it would work with the Prudential Regulation Authority to consider if ringfenced banks could provide more products.
