Ring-fencing protects retail banks, but lowers total equity value

BoE research finds concentrating risks in one group of banks depresses asset prices

The Bank of England

A Bank of England paper has concluded that ring-fencing makes commercial banks safer but reduces the overall equity value of the banking system.

Ring-fencing separates retail or commercial banks from more investment-focused units within the same holding group. The ring-fenced banks cannot hold riskier interbank loans or assets, which become concentrated in the non ring-fenced banks (nRFBs).

The UK mandated ring-fencing in a 2013 law. The provision, which applies to all banks with more than £25

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