U.K. banking group Barclays announced the completion of its “ring-fencing” project, an overhaul of the financial institution’s structuring to prevent some of the scenarios that occurred in the wake of the financial crisis.
Reports in The Financial Times on Monday (April 2) said Barclays transitioned 24 million customer accounts and more than $350 billion in assets into an entirely new bank with its own capital requirements. Known as “ring-fencing,” the strategy aims to separate bank assets from riskier operations at the bank and will be a requirement for the largest U.K. banks starting Jan. 1, 2019.
The process involved separating its consumer banking units from its investment arm and separating services for large corporates and small businesses. Larger corporate customers will be managed via the non-ring-fenced bank, while smaller clients will be serviced by “Barclays Bank U.K.,” reports said.
Chief Executive Jes Staley told the publication the process was more complex than Brexit preparations.
“This completes three years of work involving 2,000 colleagues and means we can now focus even more on enhancing services for our customers and clients, and on growing returns,” Barclays said in an announcement.
The restructuring aims to protect taxpayers from having to bail out “too-big-to-fail banks” as they did in the wake of the 2008 global financial crisis. Barclays said the overhaul will also help it revamp focus on small business banking, wealth management and other financial services.
“Ring-fencing will support financial stability by making banking groups simpler and easier to ‘resolve,’” explained HM Treasury in a policy paper on ring-fencing published last year. “This means that if either the ring-fenced or non-ring-fenced part of the bank fails, it will be easier to manage the failure in an orderly way without the need for a government bailout. As well as ensuring that U.K. taxpayers are not on the hook for bank failures, ring-fencing should mean fewer and less severe financial crises in the future, which will benefit the whole U.K. economy.”
For Barclays, the process cost nearly $1.4 billion and took three years to complete, according to reports.
Some critics have warned that the overhaul could lead to a more disruptive breakup of the bank in the future, but reports noted that because both the ring-fenced and non-ring-fenced parts of Barclays operate with joint IT infrastructure and have mutual customers, a breakup is not necessarily in the cards.
Last year, some Barclays investors were reportedly pressuring Barclays to spin off units in favor of a breakup to adhere to ring-fencing regulations. According to the Financial Times, Edward Bramson entered Barclays as an activist investor via investment vehicle Sherborne, which landed 5 percent of voting rights last month. Reports noted Bramson may push for a breakup in an effort to strengthen all assets of the institution.
One of Barclays’ largest shareholders told the publication the overhaul was a “juggling act”; however, that does not necessarily make it easier for the bank to commence breakup proceedings.
“The idea that there is an easy carve-out [opportunity] created by the legislation is just not true,” the investor said.
The Bank of England issued a warning last year about how the establishment of these ring-fenced banks could lead to disruption of service for customers.
The Financial Times said one person who worked on Barclays’ ring-fencing process said the institution is “apprehensive” about how end-customers would be impacted. Some bank systems were temporarily shut down, and customer sort codes were changed, the person said, noting that because the ring-fencing process was completed at Barclays before the Jan. 1 deadline imposed by the Bank of England, the bank is confident customer disruption will be contained.
“From our perspective,” the source said, “success is to have an event where customers and colleagues largely don’t notice what happened.”
Other major financial institutions in the U.K. have similar plans under way, with HSBC planning to complete its own overhaul later this year with the transfer of thousands of staff to Birmingham as it establishes its own ring-fenced bank. RBS, too, is planning a similar transfer at the end of this month, reports said.