New ring-fencing rules to cost HSBC £1.5 billion
HSBC says the cost to implement the Bank of England's new ring-fencing rules will be c. &pound;1.5bn, and argues that this will take vital resources away from more useful projects that the bank would prefer to be implementing, including improving customer service and the prevention of the mis-selling of the foreign exchange benchmark. Furthermore, senior bankers say that other regulatory reforms that are already underway in the banks make the need for ring-fencing redundant. &nbsp;However, the architect behind the ring-fencing plans, John Vickers, continues to argue that the rules are as necessary now as they were in 2011.
John Vickers says ringfencing rules are still necessary

Despite some bankers calling for an end to ringfencing, John Vickers says the case for separating the retail banking and investment banking arms of banks is still necessary.

The architect behind ringfencing plans has said British banks still need to protect domestic retail customers from riskier parts of their operations, and the case for this is still as strong as in 2011.

In my view the case for those measures every bit as strong as when we made our report four years ago, arguably stronger still, Vickers told the House of Lords Economic Affairs Committee.

Vickers, who headed the Independent Commission on Banking (ICB), which recommended the ringfencing, said rules were still needed despite claims other regulatory reforms had made them redundant.

The questioning follows recent criticism of the proposals, which has made the case that subsequent reforms to bank regulation, including more stringent capital and liquidity requirements, has made the ringfence redundant before it has even been implemented.

The ICB had the task of looking at how to reform the banking industry in the UK after the government bailed out the Royal Bank of Scotland and Lloyds Banking Group, at a combined cost of £66bn to the taxpayer in the midst of the crisis.

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David Walker, former chairman of Barclay, has said new capital and liquidity requirements introduced since the ICB’s report, as well as new European rules on the recover, and resolution of failing banks, had made ringfencing redundant.

Ringfencing is currently thought to be a factor affecting the possible departure of HSBC from the UK, who have been a vocal opponent of Vickers’ demands.

HSBC boss Stuart Gulliver has spoken out against it, and splitting the units could cost HSBC around £2bn, taking years and leaving the bank with a more expensive funding structure.

Read more: Ringfencing is the wrong solution to the wrong problem

Lloyds chief Antonio Horta-Osorio, conversely, is in favour, arguing the ringfence will make the sector more stable, and could result in reducing tougher regulations elsewhere, including capital buffers.

The Bank of England has said it would not water down Vickers’ recommendations, telling banks they must set up a boundary around their branch operations to protect taxpayers from another possible bailout, such as during the financial crisis of 2007 – 2009.