Reeves scraps post-crisis banking rules in scramble to boost growth

Rachel Reeves has scrapped banking rules meant to make the City safer in the wake of the financial crisis as she scrambles to boost growth.The Chancellor has watered down ring-fencing rules, which were instituted after the credit crunch as a way to protect consumer deposits.The rules require lenders to separate retail and investment banks to prevent ordinary savers from being burnt by the kind of “casino banking” bets made in the run-up to the 2008 crisis.Under the changes, Labour will cut the number of services that must be kept separate and will allow retail banks to engage in some hedging activities.Rachel Blake, the City minister, said the reforms would “support growth and create jobs across the country”.Ms Reeves has been slashing red tape in the City since becoming Chancellor in an effort to boost growth, which has flagged under Labour. The Chancellor has axed some regulators while watering down the power of others.However, Labour’s leadership turmoil threatens to undo some of Ms Reeves’s work. Angela Rayner, the former deputy prime minister and a possible candidate to replace Sir Keir Starmer, has called for tighter regulation of the City, pledging to raise the banking profit surcharge from 3pc to 5pc.The UK was the only country to adopt a ring-fencing regime after the financial crisis and all large banks, with the exception of Barclays, have criticised the rules. They have argued that the rules overlap with other regulations and unfairly increase costs for banks operating in the UK, given Britain is a global outlier.CS Venkatakrishnan, the chief executive of Barclays, has argued that while there are issues with the ring-fencing regime, banks have been able to make it work and the protections it provides depositors make it worthwhile overall.While the rules had their origins in the financial crisis, they were not put in place until 2019.The Treasury said that the new rules would enable banks to provide up to £80bn in additional support to businesses. The changes, which will be sent to consultation, will allow banks to share more operations such as IT services between their retail and investment banking operations.It will also allow banks to offer more complex hedging products to retail clients, among other changes.When Labour first came into government, it raised the ring-fencing threshold by £10bn, allowing lenders to amass £35bn of customer deposits before they had to separate their operations.David Postings, the chief executive of UK Finance, the trade body for the banking industry, welcomed the reforms. He said: “We hope these reforms can be implemented swiftly as ultimately this is about unlocking additional lending capacity for businesses and households, enabling banks to support the UK economy more effectively, and strengthening the UK’s international competitiveness.”