Barclays heading for a showdown with the Bank of England over secret plan
Barclays is heading for a showdown with the Bank of England over a secret plan to place its high street operations under the temporary ownership of its investment banking arm, and is warning regulators that the credit ratings of its investment bank could be slashed unless it is permitted to restructure its operations in this way.  This move threatens to drop a bombshell into the midst of the UK's banking reforms just days after the Prudential Regulation Authority (PRA) outlined new measures designed to protect taxpayers in the event of a future banking crisis, and is likely to fuel a debate over whether post-crisis rules are being watered down.

Barclays appears to be considering ways to defy the strict separation of its high street operations from its investment bank, in a move likely to inflame the debate over whether rules designed to prevent a second banking crisis are being watered down.

The bank, which is poised to name ex-investment banker Jes Staley as its next boss, is considering a plan that would put its retail banking arm under the ownership of its investment bank. Although temporary, the arrangement could last years.

The move would appear to fly in the face of the wishes of Sir John Vickers’ Independent Commission on Banking, which in 2011 concluded the stability of the financial system would be improved if banks ringfenced their high street arms from their riskier investment banks. The separation must be completed by 2019 although the detail of the rules is still being finalised.

The plan emerged hours after senior policymakers at the Bank of England were forced to deny beginning to water down the ringfencing rules. The Bank’s governor, Mark Carney, also acknowledged it would be a “miracle” if further changes were not needed.

Barclays has always been regarded as having a tough challenge in meeting the ringfencing requirements because of the size of its investment bank. John McFarlane, the bank’s chairman, has reportedly told top staff in recent weeks that the bank needed a way to protect the credit rating of its investment bank following the introduction of ringfencing.

The investment bank’s credit rating is strengthened by its diverse structure, but that effect would disappear if it was a standalone business.

A number of ideas have been discussed, and the latest would involve the high street operations sitting inside the investment bank for a number of years. It is not clear whether the plan has been submitted to the Bank of England’s regulation arm, the Prudential Regulation Authority (PRA).

John McFarlane. Photograph: CNBC/Getty Images

Andrew Bailey, the PRA boss, is likely to be specially mindful of criticism over watering down the ringfencing rules after a consultation document last week allowed the ringfenced bank to pay dividends to its parent provided it had enough capital.

Bailey told MPs on the Treasury select committee on Tuesday that this was not a deviation from the Vickers rules.

He also admitted that last week’s dramatic government U-turn on making top bank bosses more accountable for their actions had been changed for fear they breach human rights rules.



MPs asked him about the government’s sudden removal last week of a rule placing the burden of proof on bosses to show they had done the right thing if wrongdoing emerged. Instead, the regulator will now have to prove its case against bank chiefs.

Barclays said it had not yet finalised its structural reform plan. “Respecting the regulatory process, we have not, and will not, publicly discuss our plan for structural reform until it is formally approved. However, we can be clear that any plan we submit for approval will be wholly consistent with both the legal requirements and objectives of ringfencing.”

The PRA declined to comment on the latest report about Barclays’ plans.