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UK: Banks may need $5.1 billion of capital for ring-fencing

By  |  October 15, 2015

The UK’s largest banks may face higher capital requirements under Bank of England rules on the separation of retail operations from riskier investment banking.

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    The BOE’s Prudential Regulation Authority estimates that so-called ring-fencing could mean an additional capital requirement of 2.2 billion pounds to 3.3 billion pounds by 2019, when the rules kick in.

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    The move is aimed at ensuring that financial services crucial to the U.K. economy, such as deposit-taking, payments and overdrafts, will be protected if riskier units incur losses and have to be shut down.

    The additional burden is due to the protected unit being measured on a standalone basis for its capital needs. In addition, any transactions between the ring-fenced unit and other parts of the institution will be classed as third-party deals, meaning capital will have to be held against them.

    “The PRA recognizes that applying this approach may result in increased capital requirements for some firms,” it said in a consultation paper published in London on Thursday.

    Full content: The Financial Times

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