HSBC’s bombshell review of whether it relocates its headquarters from the UK has injected urgency to talks between banks and regulators about the possibility of watering down plans to split high street from investment banking.
The Bank of England (BoE) issued a consultation paper on the break-up changes last October, but the government was privately shaken by HSBC’s announcement earlier this spring of possibly moving its global HQ.
The Vickers reforms will make the banking system strongerTreasury spokesman
Senior City figures have since talked privately with the BoE and HM Treasury about their fears of other big lenders quitting the UK if the bank restructuring creating separate self-run entities is pushed through in its entirety, sources said yesterday.
The “ring-fencing” proposals, designed to protect retail banking from riskier so-called “casino” activities, were a key recommendation of the Sir John Vickers commission in 2011 after the financial crash three years earlier.
It means major UK banks would have to put their retail activities – lending to businesses and households – into stand-alone companies.
These new companies, while owned by the parent groups, would have to have an independent chairman and a majority of independent directors.
The BoE is due to publish feedback on the ring-fencing consultation at the end of this month, but sources said HSBC’s comments had stoked the debate at the 11th hour.
One said: “You could see what Vickers was trying to do, making sure taxpayer bailouts of the likes of RBS, Lloyds and Northern Rock never happened again. But the banks would obviously prefer a lighter split of retail and investment banking.
“They know that at this late state of play a complete backtracking on ring-fencing is a non-starter … But one idea to be explored with the authorities is whether parent banks could still have a bit more operational control of the retail arms after any split.”
Bankers argue that the much stronger capital cushions regulators have forced them to build since the crash mean that totally breaking up the banks is no longer as necessary as was perceived immediately in the wake of the crash.
Some believe the overtures are bound to fail, however. One analyst said: “It looks too late in the day for Vickers to be turned over in this way. Even finessing the split of activities would be difficult.
“A central plank of his commission was to separate investment banking from retail banking to make sure we were never in a position again to be bailing out RBS with £45 billion of state money and Lloyds with nearly half that.
“There would be public indignation if, seven, eight, nine years after the crisis the banks were seen as having been allowed to carry on much like business as usual, under the too-big-to-fail model.
“I think these talks will wither on the vine, even if it does mean HSBC or someone else does decide to up sticks and move their HQ somewhere else in the world.”
A spokesman for the Treasury said: “The government is implementing the recommendations of the Vickers Commission. It is part of the biggest reforms to Britain’s banks in a generation and will make the UK banking system stronger and safer so that it can support the economy, help businesses and serve customers.”