LONDON // British banks should be required to insulate consumer units from their investment banks to shield customers and taxpayers from the consequences of a financial crisis, according to a government-appointed commission.
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Banks with consumer and securities units will have to separately capitalise them by 2019 under proposals made today in a 360-page report by the Independent Commission on Banking. The plans will cost as much £7 billion, the report said.
"The commission believes that ring-fencing would achieve the principal stability benefits of full separation but at lower cost to the economy," the commission said in the statement.
The government last year asked John Vickers, 53, a former Bank of England chief economist, to chair a commission considering ways to enhance competition and reduce the risks posed by the financial sector. Since 2007, the British state has been forced to spend, pledge and loan 850 billion pounds to rescue British banks, according to National Audit Office.
Chancellor of the Exchequer George Osborne welcomed the final recommendations, the government said in an e-mailed statement.
"The chancellor considers it to be an impressive report and an important step towards a new banking system that supports lending to businesses and families, supports the economy and jobs, but doesn't cost the taxpayer billions of pounds when it goes wrong," the statement. In July, Osborne said he backed the proposals following the commission's interim report.
Once the recommendations are implemented, the so-called ring-fenced units will include all checking accounts, mortgages, credit cards and lending to small- and medium-sized companies, the report said. As much as a third of U.K. bank assets, or 2.3 trillion pounds, will be included, the document said.
Trading and investment banking activities will be excluded from the ring-fence, the report said.
"Barclays will be the bank that is hit the most by this," followed by Royal Bank of Scotland Group Plc, said Shailesh Raikundlia, a banking analyst at MF Global Ltd. in London. Both London-based Barclays and Edinburgh-based RBS operate investment banks.
The commission stuck to its argument that Lloyds be forced to sell additional branches beyond the 632 required by European Union regulators. Rather than detail how this should be done, the commission recommended that the government negotiate with Lloyds to create a "strong challenger" bank.
There is "a real danger" that Lloyds's current asset programme "will fall back into the range of small banks that have not exerted a strong competitive constraint in the past," the report said.
Ring-fenced banks should have an independent board, the report said. Unless the protected part of the bank is the majority of the lender, most directors in the insulated bank should be independent non-executives, it said. The protected lender will make its own disclosures to regulators, it said.
HSBC Holdings Plc, Barclays, Lloyds, RBS, Santander U.K. Plc and Nationwide Building Society should hold more than 3 per cent extra capital, on top of the 7 per cent recommended by the Basel Committee on Banking Supervision under the so-called Basel III agreement, the report said. Cooperative Bank, Clydesdale Bank and the lender that Lloyds is selling should hold 1 per cent to 3 per cent extra.
"Smaller ring-fenced banks should have correspondingly smaller ring-fenced buffers," the report said.
The requirements should be seen as a minimum, and could be boosted by the 2.5 per cent surcharge for globally important banks, in line with Basel III recommendations, the report said.
Howard Mustoe // Bloomberg News
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- Premier League-standard football pitch
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- Specialist robotics and science laboratories
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- Disruption Lab and Research Centre for developing entrepreneurial skills
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
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Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
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COMPANY PROFILE
Name: HyperSpace
Started: 2020
Founders: Alexander Heller, Rama Allen and Desi Gonzalez
Based: Dubai, UAE
Sector: Entertainment
Number of staff: 210
Investment raised: $75 million from investors including Galaxy Interactive, Riyadh Season, Sega Ventures and Apis Venture Partners
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UAE currency: the story behind the money in your pockets
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Company%20Profile
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How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
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What are the regulations?
- Fly it within visual line of sight
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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COMPANY PROFILE
Name: Almnssa
Started: August 2020
Founder: Areej Selmi
Based: Gaza
Sectors: Internet, e-commerce
Investments: Grants/private funding
The Sand Castle
Director: Matty Brown
Stars: Nadine Labaki, Ziad Bakri, Zain Al Rafeea, Riman Al Rafeea
Rating: 2.5/5
Game Changer
Director: Shankar
Stars: Ram Charan, Kiara Advani, Anjali, S J Suryah, Jayaram
Rating: 2/5
Formula Middle East Calendar (Formula Regional and Formula 4)
Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi
Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi
Round 3: February 7-9, Dubai Autodrome – Dubai
Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi
Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia
The specs
Engine: Direct injection 4-cylinder 1.4-litre
Power: 150hp
Torque: 250Nm
Price: From Dh139,000
On sale: Now
Paatal Lok season two
Directors: Avinash Arun, Prosit Roy
Stars: Jaideep Ahlawat, Ishwak Singh, Lc Sekhose, Merenla Imsong
Rating: 4.5/5
COMPANY%20PROFILE
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