Chancellor Rachel Reeves has scrapped the much-hated ring-fencing rule for Santander and NatWest after 15 years, in a major overhaul aimed at freeing up capital for investment in the UK economy. The Treasury unveiled changes to the 15-year-old legislation that required major banks to separate their retail banking operations from investment banking activities.
Bank CEOs Welcome Reforms
Mahesh Aditya, chief executive of Santander UK, praised the move, saying: "The proposed changes are a positive step in the right direction in helping strike the right balance between maintaining the strength and resilience of the UK financial system while also enabling banks to do even more to support growth, investment and jobs across the country." Paul Thwaite, chief executive of NatWest Group, added: "These changes have the potential to increase lending and investment, in line with the Government’s wider ambitions of helping to unlock growth for households and businesses in every region and nation of the UK."
Growth Allowance to Unlock Billions
A new "growth allowance" will permit retail banks previously fenced in to participate in certain types of flexible, higher-risk lending or offer complex corporate finance products. The Treasury said this could pump up to £80 billion into high-growth British businesses. Institutions will also be able to share back-office functions, reducing administrative costs.
Industry Pressure Leads to Change
The bosses of HSBC, Lloyds, NatWest, and Santander had lobbied Reeves in a letter last April, arguing the ring-fencing rules were obstructing their ability to support business and the economy. Analysts identified NatWest as the biggest winner due to the larger funding cost gap between its ring-fenced and non-ring-fenced banks.
City minister Rachel Blake said: "These reforms will ensure more financing flows into UK businesses, and we can support growth and create jobs across the country. This will unlock finance for growth while keeping the UK banking system resilient, competitive and fit for the future."
