PRA tells banks to prepare for £3bn ring-fenced safety buffer

The PRA, which is part of the Bank of England, has said banks will have to keep the capital inside their retail and small business banking operations, separated from risker operations with a ring-fence in a bid to avoid future taxpayer bailouts of banks.

The PRA’s guidelines on the extra capital which describe buffers of £2.2 billion to £3.3 billion, less than 1 per cent of their existing capital bases.

However, the exact level of capital banks will have to hold within their ring-fence will be determined by the Financial Policy Committee, a separate part of the Bank of England, in May.

The PRA’s initial guidance on capital will be a relief to banks and comes alongside another huge concession from regulators over incoming rules to make senior bankers accountable for future wrong-doing.

In a dramatic U-turn, following increasing pressure from major banks such as HSBC, the Treasury said it would drop the controversial “guilty until proved innocent” rule that was to come into force from March next year, and instead maintain the current approach that investigators would have to prove wrongdoing in the event of a serious bank failure.

Banks had warned that ring-fencing, the senior managers rules, together with the bank levy announced in the last budget, may force it to relocate away from the UK.