‘No unlearn lessons’ from financial crisis, says Chancellor

The government will not reverse post-financial crisis banking regulation, as stated by Jeremy Hunt, amid growing concerns that Britain is loosening post-Brexit rules for the City.

The chancellor told the Commons Treasury select committee that a decision on whether to relax the ring-fencing between banks retail divisions and riskier investment banking businesses would be made with the aim of preserving financial stability.

We think it is time to review the ring-fenced regime 15 years after the financial crisis. Hunt said that we will not unlearn the lessons of the financial crisis and we will make sure that our regulators have a responsibility to promote financial stability.

Large banks must hold cash reserves in order to protect their retail customers from shocks or losses that can occur in riskier parts of the firm's activities, such as investment banking, in order to be ring-fencing in 2019.

Sir John Vickers, who helped devise the rules after the financial crisis, has warned the government not to loosen regulation at a time when global bank stocks have fallen in the wake of the collapse of three American banks and the forced sale of Credit Suisse.

The government asked for more evidence on whether rules to wind down a bank would be strong enough to replace the ring-fenced regime in the event of a collapse. Sir Keith Skeoch made the suggestion, which was carried out a two-year review for the Treasury.

The chancellor said that the evidence would be evaluated soon, with a final decision likely this summer. After leaving the financial services sector, changes to the rules are part of the government's reforms in Edinburgh to forge a more competitive sector.

We will bring forward plans soon, but the reassurance I want to give everyone is that we will not unlearn lessons from the financial crisis and turn the clock back, Hunt said.

Sam Woods, a deputy governor at the Bank of England and head of the Prudential Regulation Authority, warned this week against changes that would weaken the regime. He told MPs that so-called resolution rules to wind down banks were not a substitute for ring-fencing but were part of a package of post-crisis regulation designed to limit costs to the taxpayer for bank failure.

With all of these experiences - Silicon Valley Bank and Credit Suisse - it's been clear to me that you wouldn't want to rely on any one tool. Andrew Bailey, the governor of the Bank and a former head of the PRA, said ring-fencing and bank failure rules were complements, not alternatives, and that banks have been reluctant to use tougher bank resolution regimes to wind down crisis-hit lenders in recent weeks. Swiss authorities decided to force the sale of Credit Suisse to UBS, US authorities provided a blanket guarantee of all deposits before the winding down three banks, and Silicon Valley Bank UK was rescued by a 1 purchase by HSBC.