Banks face 'uphill battle' to ringfence high street operations, expert warns
|
Version 0 of 1. Major banks could struggle to ringfence their high street operations from their riskier investment banking arms by the deadline of January 2019 because of the complexities involved in dividing up their businesses, an expert on the banking sector has warned. The ringfencing rules, devised by a commission chaired by Sir John Vickers, are being introduced at the same time that banks need to make plans for resolution and recovery – so-called living wills – should they go bust. Bill Michael, head of financial services at auditors KPMG, said that despite the work that was already under way, the deadline may be tight for some banks required to make the structural changes. “The task is so enormous that some of these banks face an uphill battle to be fully compliant,” said Michael. Complying with the changes is “going to take years”, he added. “For some of the very large complex banks preparing for recovery and resolution and the ringfence, they are going to be pushing against [the deadline],” Michael said. All the major banks submitted their ringfencing plans to the Bank of England at the start of the year although more details are still to be released by the regulator about the amount of capital a ringfenced bank should hold. A consultation on the fine detail is due to be released after the summer and it was reported on Sunday that the Treasury was prepared to water down some aspects of the ringfencing rules. Asked about the rules, the Treasury said: “These are part of the biggest reforms to Britain’s banks in a generation and will make the UK banking system stronger and safer so that it can support the economy, help businesses and serve customers.” George Osborne is said to be taking a new approach to dealing with banks after the 2008 crisis. He reduced the bank levy in his budget earlier this month and did not renew the contract of the combative boss of the Financial Conduct Authority, Martin Wheatley. Some banks have been more forthcoming about their plans for ringfencing than others. HSBC is looking for a new name for its high street bank, prompting speculation it is likely to revert to the Midland brand it ditched more than 15 years ago. John McFarlane, the chairman of Barclays who is currently running the bank after the chief executive, Antony Jenkins, was ousted, has raised the possibility of buying a bank to obtain a new licence from the Bank of England. McFarlane’s predecessor as chairman, Sir David Walker, waded into the debate after leaving the bank, urging the government to rethink the plans, and warning they were costly to implement. Bailed-out Royal Bank of Scotland has given few clues about its plans while Lloyds Banking Group, which is just under 15% taxpayer owned, expects most of its operations to fall inside the ringfence. Its chief executive, António Horta-Osório, has told rivals to stop complaining and press ahead with implementing the rules. Customer deposits must be held inside the ringfence but operations such as derivatives and trade with non-EU counterparts outside. This has prompted questions about how the non-ringfenced operation can be funded by outside investors because it may not be able to attract a high enough credit rating. Michael said: “It’s a very personal view but there are huge challenges to implementing the ringfence. The big one is the financial engineering of being able to establish a non-ringfenced bank. Everyone is saying look at the ringfenced bank but the problem for the UK banks is they aren’t banks that conduct just ringfenced activities. The challenge for me is about creating a sustainable group.” |