The chief government of Barclays has launched a staunch defence of Britain’s financial institution ring-fencing regime at the same time as his essential rivals foyer the federal government to abolish it lower than a decade after its introduction.
His defence of ring-fencing – launched as a part of Britain’s response to the 2008 monetary disaster – pits Mr Venkatakrishnan firmly towards the bosses of HSBC Holdings, Lloyds Banking Group, NatWest Group and Santander UK, who wrote to Rachel Reeves, the chancellor, final week to warn that the regulatory framework was inhibiting lenders’ potential to assist drive UK financial progress.
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“The point that the other banks make about a bit of friction, trapped capital and administrative costs are correct,” Mr Venkatakrishnan mentioned.
“However, there are two counterpoints: we have spent the money on the set-up and we make it work; but the more important fact is that you have to weigh against this the immense amount of depositor protection that the ring-fencing regime gives the country.
“The ring-fencing regime is an excellent one and a really robust one.
“Depositor protection is the single-most important element of the banking system and the single-most important part of banks’ engagement with society.
“I do not assume ring-fencing ought to be relaxed or scrapped.”
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Venkat, as he’s identified inside the financial institution, was appointed chief government in November 2021. Pic: Barclays
The ring-fencing regime establishes a ‘firewall’ between banking teams’ retail arms and their funding banking operations, defending both if the opposite have been to run into severe monetary difficulties.
Barclays’ resolution to not signal the joint letter from the CEOs of the most important UK banks shocked a few of his friends at a time when the chancellor is spearheading a push to slash crimson tape throughout the financial system.
On Wednesday, Barclays unveiled first-quarter outcomes exhibiting a better-than-expected income efficiency in its funding banking division.
The financial institution mentioned group revenue earlier than tax rose 19% year-on-year to £2.7bn.
Earlier this week, the HSBC chief government Georges Elhedery confirmed that he was backing the push to scrap ring-fencing.
Of their joint letter, the quartet of financial institution chiefs advised Ms Reeves that: “With global economic headwinds, it is crucial that, in support of its Industrial Strategy, the government’s Financial Services Growth and Competitiveness Strategy removes unnecessary constraints on the ability of UK banks to support businesses across the economy and sends the clearest possible signal to investors in the UK of your commitment to reform.
“Whereas we welcomed the current technical changes to the ring-fencing regime, we imagine it’s now crucial to go additional.
“Removing the ring-fencing regime is, we believe, among the most significant steps the government could take to ensure the prudential framework maximises the banking sector’s ability to support UK businesses and promote economic growth.”
Banks spent billions of kilos designing and establishing their ring-fenced entities, with separate boards of administrators appointed to every division.
Extra just lately, the Treasury has moved to extend the deposit threshold from £25bn to £35bn, amid strain from numerous faster-growing banks.
Sam Woods, the present chief government of the primary banking regulator, the Prudential Regulation Authority, was concerned in formulating proposals revealed by the Sir John Vickers-led Impartial Fee on Banking in 2011.
Laws to determine ring-fencing was handed within the Monetary Companies Reform (Banking) Act 2013, and the regime got here into impact in 2019.
Along with ring-fencing, banks have been pressured to considerably improve the quantity and high quality of capital they held as a danger buffer, whereas they have been additionally instructed to create so-called ‘dwelling wills’ within the occasion that they bumped into monetary hassle.
The chancellor has repeatedly spoken of the necessity to regulate for progress fairly than danger – a phrase the 4 banks hope will now persuade her to desert ring-fencing.
Britain is the one main financial system to have adopted such an method to regulating its banking business – a reality which the financial institution chiefs say is now undermining UK competitiveness.
“Ring-fencing imposes significant and often overlooked costs on businesses, including SMEs, by exposing them to banking constraints not experienced by their international competitors, making it harder for them to scale and compete,” the letter mentioned.
The 4 bosses referred to as on Ms Reeves to make use of this summer season’s Mansion Home dinner – the Metropolis’s annual set-piece occasion – to ship “a clear statement of intent…to abolish ring-fencing during this Parliament”.
Doing so, they argued, would “demonstrate the government’s determination to do what it takes to promote growth and send the strongest possible signal to investors of your commitment to the City and to strengthen the UK’s position as a leading international financial centre”.
