Following the financial crisis in 2008 and the massive costs of the government bail-outs of RBS and Lloyds Banking Group, an Independent Commission chaired by Sir John Vickers, recommended in 2011 that UK banking activities be ‘ring-fenced’. All retail activities such as consumer banking, mortgages, SME payments and operations should be managed inside a retail ring-fenced bank. All riskier banking activities including structured derivatives and capital markets activities should be managed in the investment banking arm of the bank, completely separated from the retail operations.
However, at JCRA, we are beginning to see unintended consequences of the ring-fencing initiative impact our client base. Without a standard approach across banks in terms of their categorisation of derivatives, the impact on borrowers and exporters/importers with hedging products is uncertain, depending on the bank in question. While the primary reason for the legislation was, at a macro level, to avoid and/or minimise the impact of future banking failures, the reality is that, at a micro level, the changes are beginning to affect some of our clients negatively, increasing their costs and exposure to risk.
Download this report to find out the impact of ring-fencing on your existing interest rate or inflation hedging positions and how JCRA can help you navigate this process.