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

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.

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.

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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