Saturday, 20 April 2024
Barclays completes a $1.4 billion (£1 billion) ring-fence to split retail lending from investment banking
Barclays’ £1 billion transformation is complete as the bank became the first in the UK to switch on its “ring-fence” – splitting up its investment bank from its retail bank.
It used the extra bank holidays over the Easter weekend to make the move, meaning it could switch off its online banking service overnight and have extra time to fix any unexpected problems before the start of the business week. Around 1,500 Barclays staff were working overnight on Saturday into the early hours of yesterday.
The bank’s biggest-ever restructuring means Barclays UK will be run as a stand-alone retail bank.
The new Barclays UK business will be run by chief executive Ashok Vaswani and a board led by Sir Ian Cheshire, the former boss of B&Q owners Kingfisher. Its project has involved ring-fencing 24 million customers, £250bn of assets and changing a billion sort codes.
Barclays has overhauled itself in order to comply with new rules coming at the start of next year requiring Britain’s big five banks – also including Lloyds, HSBC, RBS and Santander – to wall off their high street operations from their riskier investment banks.
The regulations are meant to protect British consumers and businesses from the fallout if there is another financial crisis. The idea is that if a lender’s investment bank were to fail, the UK retail arm would have its own capital and separate IT systems and remain safe.
Barclays is the first of the big banks out of the blocks. The 1,500 staff were drafted in on various shifts to carry out final testing and will get time off in lieu.
This was the final of seven temporary switch-offs. Customers had been warned in advance that the online systems would be down from 11.30pm on Saturday to 3.30pm yesterday, though the work was actually completed ahead of schedule and the website and banking app switched on again at 9.30am.
Customers should not notice any immediate difference. Any existing standing orders and direct debits, and other transfers such as wages and salaries, using the old sort code will be automatically redirected for the next three years. They should also have received new bank cards and chequebooks with the new sort codes.
Barclays’ restructure has proved controversial, as its UK retail pension obligations will sit with its riskier investment bank, rather than at the ring-fenced bank. Barclays has claimed it was not feasible to split its pension scheme in two.
Both the regulators and the courts have rubber stamped the changes in recent months. It is the latest in a series of major banking reforms aimed at keeping the system safe in a crisis.
Ring-fencing alone cannot itself protect a bank from a collapse in its retail banking business – the crisis which brought down the UK’s former building societies in the credit crunch. Neither Bradford and Bingley nor Northern Rock had investment banking operations.
Banks have already beefed up their capital buffers to protect themselves against another crash. The Bank of England runs regular stress tests which calculate how the banking system would cope with a severe recession.
In the tests run so far, officials believe the banks would be able to withstand a recession more severe than the financial crisis, and to maintain lending, which should mean the banks supporting the wider economy.
Re-disseminated by The Asian Banker from Telegraph.co.uk
