Publications
Partners
London - HSBC will face a bill of around $2.4bn to shield its domestic retail customers from riskier parts of its operations, the chairman of its UK business told lawmakers on Tuesday.
The Bank of England has told banks they must set up a boundary around their branch operations to protect taxpayers from any repetition of the multi billion-pound bailouts required during the financial crisis of 2007 to 2009.
Among the requirements will be new boards of directors for the ring-fenced entities, new staff contracts and separate pension schemes. Banks will also need to separate their risk-management and IT operations.
HSBC has said it will base its "ring-fenced" British retail and commercial banking business in Birmingham in central England, shifting about 1 000 staff there from its London headquarters.
"Our current estimates are around £1.5bn," Jonathan Symonds, the chairperson of HSBC's UK bank told the House of Lords Economic Affairs Committee.
"I think the ongoing costs won't be substantial other than the move to Birmingham but I think the one-off implementation costs are pretty substantial," Symonds said.
Lloyds Banking Group's Finance Director George Culmer said it would cost his bank "several hundred million" pounds to set up the ring-fenced bank with annual ongoing costs in the "tens of millions of pounds".
Lloyds, Britain's biggest retail bank, has less work to do as 97% of its operations will sit within the ring-fence. HSBC, which has much larger international and investment banking operations, will only have 30% to 40% of its business within the ring-fenced operation.
Some senior bankers believe other regulatory changes and structural reforms already underway within banks have made the need for ring-fencing redundant.
Former Barclays chairperson David Walker has said new capital and liquidity requirements introduced since the ICB's report and new European rules on the recovery and resolution of failing banks had eliminated the need for ringfencing.
However, John Vickers, who headed the Independent Commision on Banking (ICB) which recommended the new ringfencing rules in 2011, told the committee they were still necessary.
"In my view the case for those measures is every bit as strong as when we made our report four years ago, arguably stronger still," he said.
The ICB was tasked with making proposals to reform the industry after Britain bailed out Royal Bank of Scotland and Lloyds Banking Group at a combined cost of £66bn during the crisis.
Bank of England Governor Mark Carney has said that new rules, including ringfencing, will enable large, globally important, banks to be wound down if they fail without the need for taxpayer-funded bailouts.
