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The UK government will raise its bank ringfencing threshold by £10bn, allowing lenders to amass £35bn of customer deposits before they must separate their retail operations from riskier investment banking divisions.
City minister Tulip Siddiq confirmed the decision in a written ministerial statement in which she set out reforms including “an increase in the primary deposit threshold for ringfenced banks, from £25bn to £35bn”.
The change is a victory for US banks JPMorgan and Goldman Sachs, which have rapidly grown UK deposit-taking banks — Chase UK and Marcus — that are not ringfenced from their wider operations, meaning the £25bn limit was a barrier to their expansion. While Goldman Sachs has scaled back its global retail banking ambitions, it is still accepting UK retail deposits at Marcus, as an alternative means of funding.
In the UK, Marcus has amassed £23bn of consumer deposits, in part by offering higher interest rates than incumbent players, while Chase has surpassed £20bn by offering customers a sleek app and cashback rewards, according to people familiar with the figures.
The ringfencing rules were introduced to protect consumer deposits after the UK government bailed out failing banks in the 2008 financial crisis.
Siddiq said on Monday the government would make the change as part of a wider package of reforms “as soon as parliamentary time allows”.
The package is also set to include a new “secondary” threshold, which will exempt retail-focused banking groups from the rules provided investment banking accounts for less than 10 per cent of their tier one capital, the buffer which banks are required to retain in case of a crisis.
Other changes will “reduce the compliance burdens associated with the regime” and encourage ringfenced banks to invest more in supporting domestic SMEs, according to the ministerial statement.
The statement added that the package would also include “new flexibilities to allow ringfenced banks to operate globally” but still subject to the Prudential Regulation Authority’s rules.
“The reforms will improve competition and competitiveness in the UK banking sector and support economic growth, while maintaining financial stability,” Siddiq said.
The current regime, which has been in force since 2019, requires core banking services — such as taking deposits, making payments and providing overdrafts to UK retail customers and small businesses — to be kept financially and operationally separate from investment banking and international banking activities.
The changes follow an independent review in 2022 by City grandee Sir Keith Skeoch. Banks had been lobbying both the Labour government and the previous Conservative administration to make the change.
The previous government consulted on the changes but a plan to raise the threshold to £35bn was not implemented before the July election, according to people in the industry.