The Treasury has announced plans to ease ring-fencing rules for banks, introduced after the 2008 financial crisis, to boost lending and investment. The reforms aim to create a "more agile and proportionate" regime for retail banks, potentially unlocking £80 billion in additional lending to businesses, according to the Treasury. Key protections for consumers will remain unchanged.
Industry Reaction
The move was warmly received by major banks including NatWest and Santander on Monday. Economic Secretary to the Treasury and City Minister Rachel Blake stated: "Where financial systems are inefficient, we will change them. These reforms will ensure more financing flows into UK businesses, and we can support growth and create jobs across the country." She emphasized that the changes would maintain a resilient and competitive banking system.
Regulatory Adjustments
The Bank of England's Prudential Regulation Authority (PRA) will consult on the proposed reforms and publish results this summer. The reforms grant the PRA greater flexibility to update and tailor ring-fencing rules over time, moving away from "rigid legislation". David Bailey, Executive Director for Prudential Regulation at the PRA, said: "The PRA's forthcoming consultation on shared services is designed to make the ring-fencing rules more proportionate, reducing compliance costs for Britain's biggest banks while retaining important protections for consumers' deposits."
Bank Executives' Views
Mahesh Aditya, Chief Executive of Santander UK, commented: "The proposed changes are a positive step in the right direction in helping strike the right balance between maintaining the strength and resilience of the UK financial system while also enabling banks to do even more to support growth, investment and jobs across the country." Paul Thwaite, Chief Executive of NatWest Group, added: "These changes have the potential to increase lending and investment, in line with the Government’s wider ambitions of helping to unlock growth for households and businesses in every region and nation of the UK."
The reforms represent the latest policy change from the Chancellor aimed at easing red tape to stimulate investment and growth, despite concerns about potential increased risk. Ring-fencing rules were originally strengthened to prevent problems in investment banking from affecting high-street operations and to protect consumers.
