Ring-fencing retail banks would be costly

Round_fenceCity consultants are warning that plans to force British banks to ring-fence their retail operations, which recently gained backing from Chancellor George Osborne, risk making London less competitive as a financial services centre.

Julian Korek, founding member at financial adviser Kinetik Partners, said the proposals would add expensive regulatory and compliance burdens, and warns that some global banks may consider moving offshore rather than break up.

“The customer will not escape increased costs either, and will be charged more because high street banks will no longer be subsidised by their investment arm,” he added.

The ring-fencing plans are designed to protect local branches, loans and customers' savings should a bank's trading arm sustain severe losses. Supporters say the move could protect the UK taxpayer from having to prop up failing banks.

The plans may have been inspired by the plight of Northern Rock, which was nationalised in 2008 after suffering a bank run – the UK's first in 150 years.

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