The Leeds Reforms signify major potential changes to financial regulation, particularly concerning the ringfencing regime. Scrapping ringfencing could risk a return to pre-2008 practices, which aimed to separate retail and investment banking to enhance stability. A review announced seeks to balance reforms for growth while ensuring consumer deposit protection. However, experts warn that removing ringfencing may lead to increased lending costs and undermine the safety provided by the current regimen. While some proposed reforms are sensible, others appear less effective, highlighting concerns over the pursuit of growth through deregulation.
If the ringfencing regime for banks were to be scrapped, we really would be entering a new era or going back to an old one, since the separation of banks' retail and investment banking activities was the single biggest regulatory change introduced after the 2008-09 crash to try to prevent another blow-up.
The stout defence of ringfencing from Andrew Bailey, governor of the Bank of England, has always felt more compelling: the regime has made banks safer and removal would increase the cost of loans and mortgages.
A fudged outcome would see more activities allowed within the ringfenced entity. It is technical stuff, but also deeply important.
Tread carefully, chancellor: ditching ringfencing in its entirety risks unlearning the lessons of the last crisis.
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