Bob Diamond wants to scrap rules that shackled lenders after financial crisis

Former Barclays boss Bob Diamond is lobbying for an end to ‘ring-fencing’ rules set up in the wake of the financial crisis to prevent high street banks from making risky investments. 

The controversial banker, who was at the forefront of banking giant Barclays’ response to the crash, is pushing for a change to measures created to stop banks ploughing ordinary savers’ cash into risky financial securities. 

The Mail on Sunday understands that he hopes to unlock growth in the banking sector and open up lucrative deals for his investment firm Atlas Merchant Capital. 

Atlas has called for the changes as part of a major review spearheaded by City veteran Keith Skeoch. 

The Mail on Sunday has learned that Diamond’s company is among a string of major lenders – including Lloyds, HSBC, Barclays, NatWest and Nationwide – that have also been calling for changes to the so-called ring-fencing scheme. 

Diamond’s firm has told Skeoch that ring-fencing restrictions have killed off competition by forcing the largest banks to plough billions into safer investments – in particular mortgages – rather than using the money for investment banking. 

This has triggered a mortgage price war that has forced a string of smaller competitors – including Tesco Bank and Sainsbury’s Bank – out of the market. Meanwhile, the stringent rules have stifled the growth of new entrants. 

But Conservative MP Kevin Hollinrake said: ‘You never take down a fence until you know why you put it up. 

‘There were good reasons for ring-fencing. It was seen at the time that banks were gambling with funds from depositors – with unfair effects on consumers.

‘We need to be very careful before we scrap these things that were put in for good reason. We should not accept the banks’ position as a fait accompli and we need to balance that with the concerns of regulators and the reason for creating it in the first place.’ 

American-born Diamond was a key figure in efforts to shore up Barclays in the financial crisis in order to avoid a taxpayer bailout. He also negotiated the takeover of the Lehman Brothers’ investment bank after its collapse. 

Diamond was later branded the ‘unacceptable face of banking’ by then Business Secretary Lord Mandelson over claims that he was in line for a pay package worth £60million. The banker was ousted as Barclays’ chief executive when the bank was fined £290million for trying to rig inter-bank lending rates. 

Atlas has also warned that high street lenders are now overexposed to UK corporate failures because complexities in the rules mean they have pulled back on lending to foreign clients. 

The firm said taxpayers were not protected by the scheme because the largest lenders are still ‘too big to fail’ and would need a government bail-out if they went under. 

Industry body UK Finance has also called for a ‘dismantling’ of the ring-fencing rules. It has said banks are well protected by a host of other safety measures such as strict capital buffers. 

Banks must now undergo regular ‘stress tests’ to ensure they could survive a major financial crisis. Executives also face jail time if they run their bank irresponsibly. 

In a submission sent to Skeoch, UK Finance said: ‘The Covid pandemic led to unprecedented shifts in economic activity. Reforms made after the global financial crisis meant that the financial system was able to support households and businesses through these changes, rather than amplifying the disruption. This provides evidence for the effectiveness of the various reforms overall.’ 

UK Finance has also claimed that the rules have forced domestic banks to focus on a more narrow range of products, making their business models less diverse. It said this trend ‘potentially increases the risk of failure of banking institutions’.