Banks forced to boost balance sheets by £3.3bn to cover ringfencing costs

After more than £65bn of taxpayers’ money had to be pumped into Lloyds and RBS in 2009, the new rules are designed to avoid the need for any future bailouts of the six largest banks

The Bank's Monetary Policy Committee voted 9-0 to keep rates on hold

Britain’s biggest banks will have to hold up to £3.3bn of extra capital between them when they are forced to ringfence their high street banking from riskier investment banking activities in 2019.

A Bank of England watchdog, the Prudential Regulation Authority (PRA), has detailed how lenders will have to change to create the ringfencing it hopes will stop so-called “casino banking” dragging down core personal and business banking, as almost happened during the financial crisis.

But banks’ shares jumped in London after the regulator decided that they would be allowed to move capital from their retail banks to other divisions under the new regime. Andrew Bailey, a deputy Governor of the Bank and chief executive of the PRA, said: “Making our firms more resilient has been at the forefront of our post-crisis reform agenda.”

After more than £65bn of taxpayers’ money had to be pumped into Lloyds and Royal Bank of Scotland in 2009, the new rules are designed to avoid the need for any future bailouts of the six largest banks.

The PRA also released plans to ensure “continuity of service” if part of a bank fails. That includes making sure that areas such as IT keep running even if one area of the bank has gone under. This would add a further one-off cost of 5 per cent and an annual cost of 3 per cent to operating costs. The watchdog estimated that could amount to £200m once and £120m annually for the average large bank.

The ringfencing proposals followed a spat between regulators and the Treasury, which overturned plans that would have made senior bankers “guilty until proven innocent”. In a Bill published on Wednesday, the Treasury dropped a requirement for executives to prove they were unaware or had taken action to prevent misconduct at their banks – known as “reverse burden of proof” – and instead introduce a less onerous “duty of responsibility” on them.

The change is seen as part of Chancellor George Osborne’s “new settlement” with financial services companies, and was seen by some as a call for an end to “banker bashing”. But it was also viewed as a snub to the Bank of England and the Financial Conduct Authority, which police banks.

Mr Bailey said: “The focus for firms and individuals should be on complying with both the letter and the spirit of the rules, rather than considering ways to circumvent them.”

In a further example of the pressure on investment banks, HSBC confirmed that contract staff in its investment arm were being forced to accept a 10 per cent pay cut and take two weeks’ unpaid leave before the end of the year.