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Consumer safeguards 'raise risk of new financial crisis'

Costly ring-fencing to protect consumers from ‘casino’ investment banking risks may have made British lenders more prone to collapse rather than safer.
UBS analysts said that the carve-out of stand-alone retail banks by Barclays and others will not benefit customers.
They claimed the changes have raised the chances of a “liquidity crisis” in the UK similar to the financial crisis.
Ring-fencing, overseen by City regulators, has left banks less flexible and unable to reallocate capital as easily in a downturn, UBS said. It added: “Beyond ?3bn in restructuring costs incurred by the big five banks, we think the affected firms are left less competitive and efficient, likely to cede share and vulnerable in a downturn.”
Consumer safeguards 'raise risk of new financial crisis'

The Treasury defended the ring-fencing policy
The reforms will lead to smaller investment banks and downward pressure on bank shares, according to the Swiss bank.
Ring-fencing has already been completed by Barclays, RBS and Lloyds, with HSBC and Santander to follow suit before a deadline in January. Barclays alone has spent ?1 bn to move 24 million customers, ?250 bn of assets and change a million sort codes.
The regulations are meant to protect consumers and businesses from the fallout of another financial crisis. According to regulators, if an investment bank fails, the associated retail bank would have its own capital and separate IT systems and remain safe.
The Treasury defended the policy. “Ring-fencing protects the deposits of everyday customers, reduces the likelihood of a future financial crisis and, if a bank fails, ensures that the taxpayer is not on the hook,” a spokesman said.
Former business secretary and Liberal Democrat leader Vince Cable said: “We need to make sure these bad banking behaviours are at an end. There can be no return to the bad old days.”
UK Finance, which represents Britain’s lenders, said: “The industry has worked with regulators to ensure these changes are brought in on time and will closely monitor their impact.”
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