Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what recent assessment he has made of the potential impact of the £25 billion threshold for banks to separate out their retail deposit-taking operations into a ring-fenced entity on the competitiveness of the UK retail bank industry.

On 28 September 2023, the government published draft secondary legislation for consultation on reforms to the ring-fencing regime. The reforms will make the regime smarter and simpler by taking forward recommendations made by the independent ring-fencing review and going further in a number of areas. This includes increasing the “core deposit” threshold, above which firms become subject to the regime, from £25bn to £35bn.

The deposit threshold was originally set at £25bn by HM Treasury following recommendations from the Independent Commission on Banking (ICB) in 2011. The government white paper published in 2011 in response to the ICB outlined that the threshold would need to be adjusted over time to reflect the evolution of banking practices and growth in the deposit base.

Since then, the deposit base has grown significantly and the resilience of the banking sector has increased. The proposed £10bn increase to the threshold would result in approximately 90% of banks’ UK retail deposits being covered by the ring-fencing regime, which is broadly in line with the proportion covered when the threshold was set originally.

The updated threshold will provide banks currently below the £25bn deposit threshold with more room to grow before becoming subject to the ring-fencing regime. By removing a potential barrier to growth for banks, this proposal will support competition in the UK retail banking industry, and benefit the sector and its customers as a whole

The government will publish an impact assessment on its proposed reforms to the ring-fencing regime alongside introducing forthcoming secondary legislation.