Key facts
- Rachel Reeves will announce the next steps for bank ring-fencing reforms at Mansion House.
- A consultation will be launched to gather industry feedback on implementing the reforms.
- The reforms include a "growth allowance" to enable retail banks to engage in higher-risk lending.
- Ring-fencing, in place since 2019, separates retail and investment banking activities.
- The Treasury estimates the reforms could unlock up to £80bn in additional financing for UK businesses.
- Bank of England Governor Andrew Bailey has cautioned against removing the rules.
Chancellor Rachel Reeves is set to announce the next phase of reforms to the UK's bank ring-fencing rules at Mansion House. This initiative, expected to be one of her final acts before a potential change in chancellorship, involves launching a consultation to gather industry feedback on implementing a package of reforms first announced in May. These reforms include the introduction of a "growth allowance," which aims to permit retail banks to participate in more flexible, higher-risk lending and offer complex corporate finance products.
Ring-fencing, a post-financial crisis measure enacted in January 2019, mandates that major banks segregate their retail and investment banking operations. The upcoming changes will also allow institutions to share back-office functions, such as IT and compliance, across the ring-fence to reduce administrative costs. The £35 billion deposit ceiling for ring-fenced retail operations will be subject to review every three years. The Treasury projects these reforms could unlock up to £80 billion in additional financing for UK businesses.
Legislation to enact these changes is anticipated following the passage of the Financial Services Bill. However, the results of the consultation are likely to be addressed by a new Chancellor, as Rachel Reeves is reportedly being considered for a different role. Potential successors include Ed Miliband, Wes Streeting, and Shabana Mahmood.
The reforms are seen as a modest victory for domestic lenders like Natwest, Lloyds, and Santander, who have advocated for the complete removal of ring-fencing, arguing it hinders their ability to support businesses. Barclays' chief executive, CS Venkatakrishna, has defended the system, noting the costs already incurred and the benefits of shielding retail operations from its investment bank.
The Conservative Party, through Shadow Chancellor Mel Stride, has proposed more extensive reforms, aiming to dismantle the ring-fencing regime entirely, estimating this could free up approximately £1.5 billion in capital. Bank of England Governor Andrew Bailey has expressed reservations, warning that abandoning the rules could negatively impact UK lending by diverting funds from retail to investment activities outside the UK.