Bank of England chief says ‘not sensible’ to tear up ring-fencing rules

The governor of the Bank of England has warned against tearing up the UK’s ring-fencing regime, which he said was good for British banks and consumers, after the Government announced plans to reform the system.

Andrew Bailey also stressed that the UK cannot “compromise” on financial stability amid the Treasury’s plans to rip up red tape across the sector.

Ring-fencing was brought in after the 2008 financial crisis and requires banks to separate their retail services from their investment banking activities.

It aimed to protect UK consumers from the effects of any shocks felt by other parts of a bank and in the global financial markets.

But Government plans to reforms the rules, unveiled last week, are intended to make Britain more competitive globally and give banks more flexibility.

Mr Bailey told MPs on the Treasury Committee: “I do think the ring-fencing regime is an important part of the structure of the banking system.

“It makes the resolution of banks if they’re in trouble much easier, and it benefits, particularly in terms of the UK, consumers, business and households.

“I’m sure there are things that can be improved and we will work constructively to get through that process.”

He added: “I think it has established itself as part of the system and to me it would not be sensible to take it away at this point.”

The ring-fencing shake-up formed part of Rachel Reeves’s “Leeds reforms” – a package of measures which she said are set to be the biggest changes to financial services for more than a decade.

Ms Reeves said regulation “still acts as a boot on the neck of businesses” in many areas, and urged regulators to avoid “excessive caution”.

Asked if he agreed with those comments, Bank of England chief Mr Bailey said: “It’s not a term I’d use.”

“I think there are areas that we clearly should look at it… we’ve announced a whole range of things we’re doing, and that’s a good thing,” he told the committee.

“But we can’t compromise on basic financial stability and that would be my overall message.”

However, Mr Bailey added that, post-Brexit, the UK is in a better position to reshape the financial rule book to suit the sector, rather than relying on EU rules.