BIG banks may have to hold up to £3.3 billion of additional capital as well as budgeting for hundreds of millions of pounds more in operating costs under the latest ring fencing proposals.
That came as senior banking managers saw a system to make them more responsible for failings on their watch get watered down but widened out to cover the whole financial services sector.
A consultation paper from the Bank of England on plans to separate domestic high street banking from other areas, such as investment banking, suggests the plan will end up hitting larger banks in the pocket.
The ring fencing, to be brought in by 2019 and which aims to protect consumers in the event of a crisis, will only affect banks with more than £25 billion in deposits.
Royal Bank of Scotland, Lloyds Banking Group, HSBC, Barclays, Santander UK and Co-operative Bank are those affected.
The BoE suggests banks should expect to take a one-off hit equivalent to around five per cent of operating costs on implementation as well as ongoing costs in the region of three per cent.
For a larger bank that could mean around £200 million initially followed by an annual bill of around £120m.
That will come on top of the collective £2.2bn to £3.3bn in extra capital the BoE expects the banks collectively to have to find.
That could yet rise as units which are ring-fenced will also have to hold an extra buffer, the level of which will be set by the BoE’s Financial Policy Committee by the end of May.
Andrew Bailey, Deputy Governor of the Bank of England and chief executive of the Prudential Regulation Authority (PRA), said: “Making our firms more resilient has been at the forefront of our post-crisis reform agenda.
“[This] represents an important step forward in achieving this aim.
“We have provided clarity for affected banks on how we will implement ring-fencing and this will enable firms to take substantial steps forward in their preparations for structural reform.”
The proposals did not dent bank’s share prices with RBS rising 1.59 per cent, up 5.1p to 326.3p.
Lloyds edged up 0.75p to 74.63p, HSBC by 3.4p to 519p and Barclays by 1.95p to 248p.
None of the banks approached wanted to comment on the proposals.
Industry sources suggested banks were happy there were no major surprises in the latest framework.
In a move which will have been welcomed by the banks the PRA is allowing ring-fenced units to pay dividends to parent companies.
Critical functions, including technology platforms and human resources, can be shared but risk has to be managed on a standalone basis.
But there was a warning the incoming rules will force some banks to change structures and business models.
Rob Moulton, regulatory partner at law firm Ashurst, suggested assets disposals and reviews of outsourcing contracts could be on the agenda.
He added: "This paper will require large scale restructuring operations at all the major banks."
Separately the plans to make senior bankers more responsible for failings which happen in their area were amended.
The Senior Managers & Certification regime has dropped a requirement for workers to prove they were unaware or had taken action to prevent misconduct.
They will now have a “duty of responsibility” to take appropriate steps to prevent any breaches of regulations.
Banks had been concerned the reverse burden of proof could put off top bankers from working in London.
The re-worked code is also being widened out from just banking to cover the entire financial sector.
Mr Bailey believes the changes will still provide a more robust regime.
He added: “The focus for firms and individuals should be on complying with both the letter and the spirit of the rules rather than considering ways to circumvent them.”
Tracey McDermott, acting chief executive of the Financial Conduct Authority, said: “Extending the Senior Managers’ and Certification Regime is an important step in embedding a culture of personal responsibility throughout the financial services industry.
“The regime is intended to deliver better decisions to help avoid problems arising.
“We remain committed to holding individuals to account where they fail to meet our standards.”
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