On the 14 June 2012, HM Treasury published a White Paper setting out the Government’s implementation of the Vickers Report. This was confirmed by George Osborne at the annual Mansion House speech. This will result in:

  • the ring fencing of high street banking;
  • banks establishing a primary loss-absorbing capacity;
  • a bail-in tool enabling authorities to write off certain liabilities in the case where a bank may fail; and
  • depositor preference in the event of a bank’s insolvency.

The proposals above are of a significant nature and will have a major impact on the UK banking sector. Jacqui Hatfield, a Reed Smith partner within the global Financial Services Regulatory Group, produced an analysis of the above proposals. Please click here to view the analysis.

Jacqui made the following comments about the situation:

“As expected, lobbying by universal banks has resulted in some concessions from the Government. However, banks will still be forced to ringfence and retail banks will still find it difficult to raise finance and to lend as a result.

“Despite this, retail banks will at least be able to enter into derivatives and can still offer simple products such as fixed rate mortgages going forwards.

“The ringfencing concession for small firms will be welcomed. It is crucial from a competition perspective as currently, there is insufficient competition in the banking industry and there has not been adequate focus on the need for it. Ringfencing measures would have led to small banks consolidating or going out of business, as well as acting as a barrier to entry.

“UK banks with significant operations abroad will be pleased with these proposals because as long as they can prove that the overseas operations will not affect the UK taxpayer, they will not need to comply with the onerous capital requirements in relation to them. However, it will be very interesting to see what proof will be required and the extent to which banks can show that their overseas operations will not pose a threat to the UK taxpayer. I expect these issues to be covered in the resolution plan.

“In addition, the maximum leverage levels will not be imposed. This follows the CRD IV measures which do not currently include a maximum leverage requirement.”