Barclays opts for a smaller bank

Barclays is planning to set up a smaller separate UK bank as it tries to meet new banking rules. Photo: Bloomberg

Barclays is planning to set up a smaller separate UK bank as it tries to meet new banking rules. Photo: Bloomberg

Published Jul 6, 2015

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Steve Slater and Matt Scuffham London

BARCLAYS is planning to set up a smaller separate UK bank than rivals as British lenders finalise how to restructure to meet new rules designed to give greater protection to savers and taxpayers.

Britain’s big lenders must set up so-called ‘ring-fenced banks’ by 2019. The new businesses must include UK retail banking and small business customers and most simple activities. Big global corporate customers and most investment banking products have to sit outside in a separate entity.

Banks are left to choose whether to place many other customers and activities inside or outside the ring-fenced business – areas such as mid-sized businesses, wealth management activities or simple derivatives products.

Different structure

Unless it makes a U-turn, Barclays will adopt a different structure to its main rivals.

Barclays looked set to choose a “narrow” ring-fenced bank, which meant it would put as few customers and activities inside the new unit as possible, industry sources said.

The sources said Barclays had long intended to follow that model, and one said the decision was rubber-stamped at a meeting last week. Barclays declined to comment.

The decision is crucial for how banks will look in the future and how they deal with customers. Setting up the ring-fenced operations is also expected to cost the industry at least £5 billion (R96bn) and be long and complex.

David Parker, the head of UK banking at consultancy Accenture, said the restructuring was difficult and costly at a time banks were “trying to reinvent” themselves for the digital era and to move on from past conduct issues.

“There’s no doubt that when you overlay the effort required for ringfencing it’s problematic and it’s forcing institutions to make very, very hard choices about whether to sacrifice launching new products or new services,” Parker said.

Still changing

Under the new rules at least six British banks must set up the firewalls, which lawmakers expect to shield savers from problems in riskier areas of banking and try to avoid a repeat of the 2007-09 financial crisis when taxpayers had to bail out Royal Bank of Scotland (RBS) and Lloyds.

HSBC, which had previously considered a narrow ring-fenced bank, has now opted to set up a broad structure. Lloyds and RBS have always planned to include the majority of their customers, staff and businesses in the ring-fenced bank, reflecting their core focus on domestic banking.

Final rules will not be laid out until early next year and how they are set for capital, liquidity, dividends and derivatives could still force banks to rethink plans.

Banks have submitted preliminary plans, but Prudential Regulation Authority boss Andrew Bailey said in May that big changes were still being made, partly because banks were already shrinking and reshaping investment banking.

Barclays appeared to have the biggest challenge, industry sources said, and it has appointed former Bank of America executive Jonathan Moulds to oversee the process. – Reuters

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