City Rift opens on the transfer of UK banks

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It is fair to assume that, if any of the last executives of Barclays Bank had requested that he sign a letter urging the Government to terminate punitive regulations, they would have jumped to the coincidence.

From John Varley, who led Barclays during the 2008 financial crisis, to Jes Staley, general director of up to three years and years ago, the heads of the bank have constantly campaigned to resist government rescues and defend onerous regulations.

Not Venkat, as it is universally known. Cs Venkatakrishnan, head of Barclays since the end of 2021, was published last week in support of the so -called ringfencing, one of the onerous rules after 2008 that forced large complex banks to structurally protect their basic UK deposit operations in separate legal entities with higher capital levels.

Arguing that he was “Next to depositing protection“, Venkat recalled that it did not spend much time that banks had to be rescued by the state. It should not be scrapped or watered, he said.

A few days earlier, Barclays’s chief had refused to sign a letter to the United Kingdom Chancellor, Rachel Reeves, of the other Top Bank’s delegated directors, taking the opposite polar line. This letterOrchestrated by HSBC’s head, Georges Elhedery had urged Reeves to demonstrate “Government’s determination to do what is needed to promote growth” and commit to the speech of the house of the July house that ranging was abolished during the current parliament.

Cue Disentent in the city of London (included inside Barclays), as well as a mystery of why the bank that has probably lost the maximum of ringfencing restrictions, thanks to its large investment and credit card banking operations, I would like to keep these sidewalks.

Like HSBC, Barclays inmates say they have spent at least 1 billion pounds implementing ringfencing. The rules impose ongoing costs, such as duplicated operations and governing expenses, and create inefficiencies by restricting how funds can be deployed within the larger group. So why did Barclays come out on a limb, apparently against his own interest?

Venkat’s public reasoning, the desire to protect the depositors, sounds noble, but he makes a strange note: surely a bank director should be confident that he can be a trusted customer tutor, without having to make a state diktat. Perhaps their pre -race to Barclays – First, as a risk manager, then as the head of the markets, he has made a mistrust that his investment bankers do not use retail deposits. A hard rule is a useful point.

Pragmatism also plays a role. In addition to the sunken cost of implementation, Venkat has created a whole Barclays strategy that is aligned with the ringfined structure, doubling the United Kingdom retail and reducing the growth of its world investment banking operations. Taking a line of regulation can also further promote those responsible for policies that they generally do not like to be publicly pressured. (Venkat broke with much of the business world last fall When he praised The tax collection budget widely criticized of Reeves.)

The calculation of the Chancellor is complicated. Ringfence has probably reproached the banks of Britain, especially internationally, but it is fantasy to think that the rule is the fault of its failure to maintain the rhythm with the Wall Street rivals: a weaker domestic economy, the 2008 trauma (particularly in Natwest/Rbs and Barclays) and the hardest regulations in other areas have been much more shocking.

Reform proponents also say that timbre cane is now superfluous: since it was introduced, other security mechanisms (capital requirements, liquidity and wind drop in a crisis) have been significantly hardened: you do not need a belt and a belt if the waist is already narrow.

Few other countries have adopted similar construction. Switzerland is one of them, although his 2023 decision to force the credit failing Suisse to a UBS rescue, instead of saving Ringfed’s domestic operation and ending the rest of the group, he did nothing to demonstrate the effectiveness of this mechanism.

As in any deregulatory measure, Reeves will have to compensate for the benefits of growth against the disadvantages of losing a security mechanism, especially for consumers, also known to voters. Apart from increasing the security of deposits (beyond the £ 85,000 guarantee), bankers believe that Ringfening has maintained artificially low mortgage rates. Once the financing of the United Kingdom is no longer trapped, the rates could increase. “The removal of the hustle and bustle would be a foolish policy and a strange policy,” says Sir John Vickers, the Oxford academic, who led the regulatory commission that conceived the rules.

Even if Reeves concludes that the ElHedery camp is right and Venkat is wrong, it would take a long time – and a new primary legislation – to revoke the refection. A quick impulse for growth, certainly is not.

Patrick.jenkins@ft.com