Keith Skeoch: ‘Banks have come a long way since the dark days of 2008’

Keith Skeoch chaired the UK Government’s Ring-Fencing and Proprietary Trading Review and is the former co-chief executive of Standard Life Aberdeen

The ring-fencing scheme was introduced after the financial crisis and largely required banks to separate their retail businesses from investment banking. Just as RBS became the poster child of the financial crisis, ring-fencing became the poster child of British banking reform.

The review [Skeoch chaired the UK government’s Ring-fencing and Proprietary Trading Review, which published its report on 15 March] into the regime was required by law, but the quality of evidence and analysis, the level of engagement with stakeholders and the expertise and insight of my fellow panel members, made it intellectually rewarding and a real privilege to lead.

The final report provides a thorough analysis of the regime. Our recommendations, I think, add real value to future regulation for the UK banking sector.

We recommended that the ring-fence scheme remain in place until further notice. However, there is a need for more flexibility across the scheme, including exemptions for certain activities and some smaller banks. Although of a technical nature, the core of our recommendations is a forward-looking focus on helping banks provide the services to their customers that are needed, while giving authorities more flexibility in their ability to regulate a dynamic and ever-changing sector. .

Two questions left a lasting impression during the review. First, the banks have come a long way since the dark days of 2008. During the Covid pandemic, for example, the government and companies were dependent on the banks providing much-needed financial support.

READ Review of ring-fencing leaves UK banks with uncertain future

It is a testament to the work of regulators and banks to change the culture, practices and even structure of the sector, which was so devastating in the run up to 2008. I believe that the reforms introduced following the recommendations of the Independent Banking Commission, was the key. driver to implement these changes.

The second striking issue is the complexity and dynamic nature of how the banking sector supports the economy.

After the financial crisis, a narrative emerged based on the idea that investment banking is bad and retail banking is good. Nothing in life is black and white, and that applies just as much to banking. Both retail and investment banks play a crucial role in the economy.

That’s not just my view – it’s also the regulators’ view of the world and the reason why the UK’s resolution scheme aims to ensure that critical services continue to fail, whether they are retail or investment activities.

The review recognized the difficult gray areas: the dangers of creating boneless retail banks; how authorities plan bankruptcy of banks in practice; and the complexity created by the interplay between different regimes.

Our recommendations are focused on the future and seem to play their part in creating a simpler and stronger industry. The risks and opportunities that the economy and the banks face today are very different than they were 10 years ago, and I have no doubt that they will be very different in 10 years’ time.

My hope is that the authorities will take a step back and consider the various and conflicting regulations aimed at improving financial stability, so that there is a uniform, coherent approach to how banks are regulated, monitored and, if necessary, resolved.

At the moment, the regimes are not working together, which is not good for the customers, creates excessive complexity for the authorities and the banks and can be catastrophic for the taxpayers should the worst happen.

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