Barclays alone among big banks in backing retention of ring-fencing regime

Repealing ring-fencing — the separation of retail and investment banking arms — is not the way to boost UK growth, Barclays UK CEO Vim Maru told lawmakers today. His view put him at odds with his peers at Lloyds, NatWest and HSBC banks, who also appeared at the Treasury Committee hearing.

“When we go back to the logic of ring-fencing, the global financial crisis and £137 billion of taxpayer support that was its origin, what has [ring-fencing] led to?” Maru said. “It’s led to financial stability. It’s led to depositor protection enhancements, with the separation of the retail business from the non-retail business, and it’s increased the trust in the sector.”

Ring-fencing has also helped the UK to weather recent financial issues around the globe, Maru said. We’ve been “more immune to that” because of ring-fencing, he added, and repealing it would not be the “right way forward”.  

Maru was responding to committee member John Glenʼs challenge that while necessary at the time of the financial crisis, today ring-fencing merely provided a “legacy of comfort” for the public that casino banking was not going to contaminate mainstream banking.

The Prudential Regulation Authority (PRA) had other tools it could deploy to ensure stability, added Glen, who was economic secretary to HM Treasury under the last Conservative government, when former Standard Life CEO Keith Skeoch was commissioned to review the UK’s ring-fencing regime.

The review recommended that banks should be removed from the regime once they were “judged to be resolvable”. It also found evidence that ring-fencing had constrained bank mortgage lending.

Oxygen for growth

Giving evidence to the committee, Paul Thwaite, CEO of NatWest Group, said regulatory developments since ring-fencing on the prudential side, particularly on resolution, together with the Financial Services Compensation Scheme, provided the necessary protections.

“Nobody wants to jeopardise financial stability or consumer protection but I think those protections are in place,” said Thwaite.

Ian Stuart, CEO of HSBC UK, told the committee that while initially ring-fencing had been put in place for a very good reason, the regime had since become “more elaborate” — with the result that his bank was “overcapitalised, with too much liquidity”.

“I really think a review now — to try to recalibrate that so that you are putting more oxygen into the economy — would be really timely,” he added.