The Government has announced proposed bank ring fencing reforms that promise to let Britain’s biggest banks lend more freely without allowing the risky bits to stroll into the customer service department. The proposals include a New Growth Allowance and a wider range of products, which the Government says could enable up to £80 billion in additional support for businesses. Depositors, meanwhile, have been assured that the protective glass will remain in place, although it has been invited to develop a more entrepreneurial outlook.
Ring fencing separates core retail banking, including deposits and lending for households and small businesses, from riskier investment and trading activity. The proposal is to make that separation more flexible, because even a financial firewall can apparently be accused of having too much administration.
The Government says the reforms would reduce duplication within banks and remove barriers to lending and investment. It also wants the Prudential Regulation Authority to update the rules more easily as the financial system changes. The framework may therefore spend less time being escorted through the legislative corridor and more time being adjusted by people who already know where the corridor is.
The proposed Growth Allowance would let major banks use part of their balance sheets more flexibly. In theory, that could channel more finance towards firms seeking to invest, expand and create jobs. In practice, every pound will still be expected to complete the forms, provide references and explain why it cannot simply grow in a cupboard.
The Government has stressed that key protections will remain unchanged. Ring fenced banks would continue to operate independently from investment banking activities, protecting retail deposits from volatility in global markets. The glass partition has therefore been promised a career in both stability and growth, which is the banking equivalent of being told to remain completely rigid while becoming more agile.
The announcement also refers to better hedging tools and wider access to programmes delivered through public financial institutions. That may help businesses manage risk. It may also create a historic opportunity for every institution involved to describe the same process using the same noun.
The serious point is straightforward. A financial system needs safeguards that work, rules that can keep pace and enough flexibility to support productive businesses. The comic point is that the partition has spent years separating danger from deposits and now faces a performance review for insufficient enthusiasm.
The reforms still require consultation, legislation and subsequent implementation. By the time the paperwork has finished explaining that paperwork is being reduced, the glass may be stronger, the money may be more willing to leave the building and the only thing still fully protected will be the sentence promising that it is all much simpler now.
Source: GOV.UK.
