BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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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.