UK banks could be forced to hold £3.3bn

The Bank of England has warned larger banks that they may need to set aside £3.3bn as extra capital as a results of proposals for riskier investments.

This move intends to give banks more clarity about implementing the ringfencing rules devised by Sir John Vickers in 2011, in which the high street operations can pay dividends back to the investment banking arm [1].

Ringfencing operations are intended to insulate high street banking businesses from their riskier investment banking arms. Banks will have to put their high street banking in a separate legal subsidiary that will have to hold capital of at least 10% – or up to 20% if debt instruments are included [2].

Andrew Bailey, a deputy governor of the Bank had said; “making our firms more resilient has been at the forefront of our post-crisis agenda. Today represents an information step forward in achieving this aim. We have provided clarity for affected banks on how we will implement ringfencing and this will enable firms to take substantial steps forward in their preparations for structural reform” [1].

The six banks affected are the Royal Bank of Scotland, HSBC, Lloyds Banking Group, Barclays, Santander and Co-Operative Bank.

They will have to wait until next year for more clarity on this, with the implementation starting in early 2019.

[1] The Guardian. ‘UK banks could be forced to hold £3.3bn under ringfencing plans’.

[2] The Guardian. ‘Banking reform: what is ringfencing?’