Why Kay, Volcker are wrong about ringfencing
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BANKING

Why Kay, Volcker are wrong about ringfencing

UK lawyers insist it is possible to effectively ringfence retail and investment activities without restructuring banks into essentially two separate entities.

But the cost and energy of creating a ringfence could force some universal banks to opt for complete separation.

Speaking last week before the UK Parliamentary Commission on Banking Standards (Commission), Professor John Kay said it was incredibly difficult to write rules that make a ringfence sufficiently robust. The market, however, thinks differently.

“It is entirely feasible for a valid and workable ringfencing system to occur within the existing banking and financial sector,” said Mayer Brown partner Dominic Griffiths.

In his submissions before the Commission, Kay said: “The reason I wrote the Narrow Banking pamphlet is because I concluded it was incredibly difficult to write rules that make a ringfence sufficiently robust.”

An impermeable ringfence, he said, would require separate governance such that retail and investment units were essentially separate entities held by the same parent company. He noted that this was, in any event, tantamount to separation.

Griffiths, however, noted that many large European and US banks with retail and investment banking operations have for some time been seeking to separate those activities, anticipating reforms requiring some form of separation.

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