NatWest CEO, Paul Thwaite, has called on Chancellor Rachel Reeves to reform post-financial crisis banking regulations, specifically ring-fencing, to stimulate economic growth. Thwaite argues that the rules, designed to safeguard customer deposits, have fulfilled their initial purpose and now warrant modification.
Implemented after the 2008 financial crisis, ring-fencing mandates banks with over £25 billion in customer deposits to separate them from other banking operations. This measure aimed to prevent a repeat of the Northern Rock bank run, ensuring depositor protection. Recent government adjustments raised the threshold to £35 billion, but Thwaite contends further changes are necessary.
He emphasizes that while ring-fencing played a crucial role initially, the financial landscape and regulations have evolved significantly. Thwaite believes there’s room for amendments that allow banks to better serve customers without compromising systemic safety and security. He expressed support for recent modifications but highlighted the potential for further improvements in the coming years.
Chancellor Reeves has prioritized reducing financial red tape as a core component of her economic growth strategy. This week, she met with leaders from major UK banks, including NatWest, Barclays, Lloyds, HSBC, and Santander UK, to discuss regulatory adjustments and potential ring-fencing reforms.
The banking industry has increasingly voiced concerns about ring-fencing, arguing that it restricts capital that could be used for lending to businesses and individuals. Bankers also point to newer regulations, such as the resolution regime, which largely duplicate the ring-fence’s objectives. Thwaite has previously suggested the regime risks becoming obsolete.
This regulatory debate coincides with NatWest reporting a £6.2 billion pre-tax profit, in line with last year’s figures and slightly exceeding expectations. Recent reports suggest NatWest might be considering a bid for Santander UK, following alleged talks last year. While declining to comment specifically on Santander, Thwaite stated that any acquisition would need to be strategically compelling and aligned with NatWest’s overall strategy. The bank, still 7% government-owned, aims to fully transition to private ownership within the next year, with the Treasury expected to divest its remaining stake before summer. This would mark a significant milestone for NatWest, signifying a definitive break from its financial crisis legacy.
In conclusion, NatWest’s call for ring-fencing reform highlights the ongoing tension between ensuring financial stability and fostering economic growth. The Chancellor’s commitment to regulatory review suggests potential changes are on the horizon, potentially reshaping the UK banking landscape. The outcome of these deliberations will significantly impact the future of lending, investment, and overall economic activity in the UK.
