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Ringfence Vaulting to become new sport?

As the electrified ringfence-erecting Banking Reform Bill is poised to enter the statute books, the FT reports HSBC is thinking of hiving off its UK operations in response. The global bank has proposed carving out its UK operation, and floating this retail-focussed, reconfigured bank on the London exchange. The article points out that such an exercise, though difficult, may be easier for globally-distributed HSBC than for some if its more UK-centric competitors. The newly-capitalised bank would be joined by forthcoming flotations from Lloyds Banking Group (TSB) and RBS, both Government-mandated, competition-creating divestments. Of HSBC’s currently integrated UK operations, approximate half the profit is derived from investment banking.

The article makes a good case for the utility, and relative facility, of the mooted move for HSBC; the matter will be a lot less clear-cut for its rivals. A complete divorce of retail and investment bank activities is the logical end of the ring-fence proposals; if one is obliged to enact a de facto split, why not gain the benefits of a de jure separation? While such spin-offs will make the voltage-varying, ringfence-monitoring work of the PRA much easier; they fail to finally answer the central objection to this halfway-house, compromised piece of legislation. Even if a separate bank is carved-out and independently floated, if it is still eventually run by the same people and is still associated with its ex-parent in the minds of investors, any and all retail operations will still be wide open to contagion from their recently-departed investment bank siblings.

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