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UK financial regulation architects warn against scrapping ‘ringfencing’

Two architects of UK financial regulation after the crisis warned of the “reckless” abandonment of rules requiring the separation of the retail and commercial divisions of big banks, after an independent panel suggested that the “closure” could be replaced by means ensuring banks could fail miserably.

A scout report commissioned by the Treasury said last week that the three-year hedging regime designed to protect savers’ money from a trade explosion should be maintained for the time being. Which means they may fail with minimal public damage.

The report says that in the longer term, measures to ensure that banks can be resolved should play a “more prominent role” than hedging, paving the way for abandoning the costly separation of banks in favor of newer measures protecting taxpayers through provisions such as forced conversion of some bonds To capital, a process known as “guarantee”.

The task force of the UK Treasury and the Bank of England will now consider recommendations on the future of the regime for banks with deposits of more than £ 25 billion, a group that currently includes HSBC, Barclays, Lloyds, NatWest Group, Santander, Virgin Money and TSB .

“If anyone in the world believes bail release will work, it’s me,” said Sir Paul Tucker, a senior fellow at Harvard University who was Vice Governor of the Bank of England from 2009 to 2013 and headed the G20 group that planned the bail package. . “But it would be reckless for Britain to put all its chips on it until the guarantee works in a massive live case, not just in table drills, and even then I would keep it to myself anyway. Defensive fences help protect citizens from Armageddon banking.”

Sir John Vickers led the 2011 report that spawned a round defense © Andrew Herr / Bloomberg

Sir Paul Tucker

Sir Paul Tucker headed the G20 group that designed the guarantee in the package © Martha Stewart

Sir John Vickers, who led the 2011 report Giving rise to a round defense, he said the Scout report’s alleged reference to “resolution” as an alternative to a shear defense was “puzzling”. From the combination of its trading and retail business.

“If a bank is big and complicated enough to be in a regime, it is unlikely that it can be solved that way. If the continuum never stands [for exclusion]”Why is there the power?” Vickers said, adding that ringfencing had improved the solvency of banks because they were already neatly divided into separate parts.

More generally, Vickers – who is currently an economics professor at All Souls College, Oxford – said minimizing the damage of bank failures is “one of several reasons we went for gender protection” in 2011. Post-crisis regulators also wanted to detach the freewheeling culture of retail divisions from retail banking, which they believe required a calmer approach, and forcing separate government structures into businesses that are inherently different.

It was an expensive and painful journey for the UK banking industry. HSBC alone spent £ 1.5 billion On the disconnection of the administration, financing and operation of the UK Retail Bank from its other businesses. Smaller banks, including Goldman Sachs’ Marcus, have argued that the regime is actually imposing a £ 25 billion ceiling on their deposits, as the cost of doing business has increased massively after crossing that threshold.

A spokesman for the Scout panel said that “it is worth maintaining the current hedging regime, but needs to be better adapted to better serve customers and address future risks” and needs to be better adapted to the solution.

“Over time, the distance that develops between the hedging regime and the solution is likely to increase,” the spokesman said, adding that the resolution regime “now bypasses the fence by providing a more comprehensive solution” to make sure banks can fail safely.

The Treasury said: “We welcome the Independent Panel’s comprehensive set of recommendations and will set up a task force with the Bank of England to assess the options recommended by the Panel and publish a government response later this year.”

UK financial regulation architects warn against scrapping ‘ringfencing’ Source link UK financial regulation architects warn against scrapping ‘ringfencing’

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