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Wealth manager Brewin Dolphin hit by restructuring costs

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Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

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RBS share drop accelerates on stress test flop

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Categorized | Banks

Vickers rejects banks’ ringfencing fears

Posted on June 30, 2015

Sir John Vickers, chair of the independent commission on banking©Bloomberg

Sir John Vickers, chair of the independent commission on banking

The founding father of UK’s bank ringfencing has dismissed the idea that by pushing retail banking units into standalone entities they could “go wandering off” and disregard parent groups’ strategy.

Some senior bankers have attacked new rules that force the biggest lenders to hive off their consumer lending operations into separately governed and funded structures, arguing that they will lose control of a key part of their business.

    Sir John Vickers, who chaired the independent commission on banking that recommended the ringfencing rule four years ago, told a House of Lords committee on Tuesday he was “very content” with how the reform had been put into law.

    In response to criticism from the likes of HSBC, which is weighing a disposal of its UK retail banking arm in response to the ringfencing rule, Sir John said: “It is quite false to imagine that a ringfenced bank can just go wandering off on its own.”

    He pointed out that his report had defined “broad principles” of independent governance for the ringfenced entities and left the detail to be implemented by regulators at the Bank of England, as they are now doing.

    However, he said “there may well be some occasions when the obligations of ringfencing are in tension with group policy and it is then that you must have adequate independence of composition, of remuneration, et cetera of those who are responsible for the decisions by the ringfenced bank, so that the integrity of the ringfenced entity is protected”.

    But he added: “That is not to cut across coherent group policies and such like.”

    When one of the committee members asked if he was trying to have his cake and eat it, Sir John said the BoE’s Prudential Regulation Authority was “baking that particular cake” but added that it was doing so with “common sense”.

    The rule is designed to protect taxpayers from ever having to bail out a bank again by ensuring that vital services, such as retail deposits or payment system operations, are kept separate from risks elsewhere in the financial sector.

    HSBC is moving 1,000 staff from London to Birmingham in preparation for basing its ringfenced unit in the city. It has raised concerns that it will be unable to exercise control over its ringfenced entity with its separate board and independent directors.

    Santander unveils plans for ringfenced UK business

    Lender will split into a retail and a corporate bank by September

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    “We’re not an asset management firm,” Stuart Gulliver, HSBC chief executive, said in May, while flagging a potential revival of the Midland brand for the ringfenced entity. “What would be uncomfortable is if we were a majority shareholder in a bank where we have no control over capital or management decisions.”

    Jonathan Symonds, chairman of HSBC’s UK operation, told the committee that implementing the ringfence was one of his board’s five key objectives. But he said that it would cost £1.5bn to implement, excluding time spent by existing staff on the project, which was “taking up a very substantial proportion of our activities”.

    Mr Symonds said he was “not totally convinced” of the value of the rule, especially as the bank was having to hold more capital, which made it much less likely to need a government bailout.

    George Culmer, finance director of Lloyds Banking Group, said he welcomed the ringfencing law. But he pointed out that unlike HSBC Lloyds hoped to have 97 per cent of its assets inside the ringfence.

    Mr Culmer said the ringfence would cost hundreds of millions of pounds to implement and have a running cost in the tens of millions of pounds.

    He said the bank had sought a waiver to avoid having separate boards of directors for the two entities, given that their assets would be almost entirely the same. He warned that without this waiver Lloyds may need to reconsider whether to keep any of the activities outside the ringfence, such as complex derivatives or debt capital markets.