Britain loosens bank ring-fencing rules to spur lending, investment

Britain loosened one of the most visible restraints built after the 2008 financial crisis, moving to make bank ring-fencing rules more flexible in the hope of pushing more credit into the real economy. The government said the overhaul would create a more agile and proportionate regime, reduce duplication and remove barriers to lending and investment, while keeping core protections for depositors in place.

Ring-fencing, which came into force on January 1, 2019, was designed to keep ordinary savings and everyday banking separate from riskier investment-banking activity. It stemmed from the 2011 Independent Commission on Banking, chaired by Sir John Vickers, and was later written into law through the Financial Services (Banking Reform) Act 2013. The regime applies to UK banking groups with more than £35 billion of core deposits and material investment banking activity, a rule that covers lenders including Barclays, HSBC, Lloyds Banking Group, NatWest and Santander UK.

HM Treasury said the changes could unlock as much as £80 billion in additional financing for UK businesses and infrastructure. Officials also said a new growth allowance could be worth up to 10% of banks’ Pillar 1 risk-weighted assets for credit risk, a measure intended to give lenders more room to expand productive lending without dismantling the firewall that ring-fencing created after the crisis. The government’s message was clear: banks should be able to support growth more easily, but not at the expense of the stability that ring-fencing was meant to secure.

The reforms will not abolish the framework. Instead, HM Treasury and the Prudential Regulation Authority are moving toward a more flexible structure that shifts some provisions out of legislation and into PRA rules, where they can be updated faster. The PRA said it will consult on changes to the rules governing shared operational services for ring-fenced banks, an area where firms have complained of duplication and unnecessary cost. The government also said the PRA and the Financial Policy Committee will review how ring-fencing interacts with the Basel 3.1 output floor and the leverage ratio.

The package follows the statutory independent review of ring-fencing and proprietary trading led by Sir Keith Skeoch, which reported in March 2022. For ministers, the political calculation is straightforward: Britain wants its biggest banks to lend more aggressively to businesses and infrastructure, but regulators are signaling that the dangers once associated with tighter firewalls now look more manageable, or at least less politically urgent, than they did in the years after the crisis.