- Bank ring-fencing limit will rise from £25bn to £35bn
The Government is set to green light a move for the bank ring-fencing threshold to rise £10billion to £35billion.
In a written ministerial statement, City Minister Tulip Siddiq announced a package of reforms to ‘improve competition and competitiveness’ in the UK banking sector.
The move will allow banks to amass £35billion of customer deposits before needing to ring-fence retail banking operations from riskier investment banking operations.
US investment banking giants JP Morgan and Goldman Sachs, which own the popular deposit-taking accounts Chase and Marcus in the UK, are set to benefit from the change – and it could result in them offering higher savings rates.
City Minister Tulip Siddiq has announced plans to overhaul bank ring-fencing rules. US-owned Chase and Marcus are set to benefit from the change
Chase and Marcus are not ring-fenced from the investment banks’ wider operations, so the £25billion limit was a barrier to their deposit-taking growth.
In 2020, This is Money revealed Goldman Sachs-owned Marcus had to close its market-leading easy-access account to new customers because it came close to breaching the £25billion ring-fence limit.
At the time Marcus had attracted around £21billion from more than half a million UK savers since it launched in 2018 at a pace of £1billion a month.
Ring-fencing requirements were introduced to protect customer deposits after the Government bail out of failing banks in the 2008 financial crisis.
Under the current rules, core banking services, such as taking deposits, making withdrawals and providing loans to UK retail customers, must be separated from investment banking and international banking activities.
‘The reforms will improve competition and competitiveness in the UK banking sector and improve economic growth, while maintaining financial stability,’ Siddiq said.
The package of reforms is also set to introduce a new ‘secondary’ threshold which will exempt retail-focused banking groups from ring-fencing rules, provided investment banking activity accounts for less than 10 per cent of their tier one capital.
Under the plans, new flexibilities will also be introduced to allow ring-fenced banks to operate globally, subject to Prudential Regulation Authority rules.
The changes follow an independent review of ring-fencing led by Sir Keith Skeoch in March 2022, which made recommendations to improve the operation of the ring-fencing regime and is believed the rise was close to happening under the previous government.
The Government said it would implement the reforms ‘as soon as parliamentary time allows’.
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