09 Jun Bankers Warn that Ring Fencing May Expose Financial Services Sector to Risk
Bankers are claiming that recent plans to ring-fence the money of UK savers to protect it in
the event of another banking collapse could have the unwanted side-effect of exposing the financial services sector to more risk.
The Independent Commission on Banking (ICB) has drawn up the plans, which would require banks to ring-fence retail banking cash. According to Investopedia, ring-fencing is "A protection-based transfer of assets from one destination to ano ther, usually through
the use of offshore accounting.
A ring fence is meant to protect the assets from inclusion in an investor's calculable net worth or to lower tax consequences"
While the rule would likely see great support amongst the public, some banks have already come out in opposition of it, with Bank of Scotland chief executive Stephen Hester claiming that the new rules would create a "moral hazard" and increase costs to taxpayers.
Hester told a Treasury Select Committee that "There is a great moral hazard if you create a protected beast that the government will support, while other parts of the banks are made more volatile as there is no way they would be supported."
Bob Diamond, who is the chief executive of Barclays, agreed with Hester and claimed that separating the money would mean implicit state guarantees for banks will have to be made explicit.