Seven foreign-owned retail banks in the UK with hundreds of thousands of British depositors could be forced to close their doors after the Bank of England unveiled plans yesterday for a crackdown.
The Bank said that it was imposing a tough regime on the UK branches of banks from outside the European Economic Area that took more than £100 million in British deposits or had more than 5,000 depositors.
They would either have to shut down their retail banking operations in Britain or convert from branch status to full UK subsidiary — a costly and cumbersome process.
The Bank declined to name the banks affected, but analysts suggested that Bank of India, State Bank of India, Isbank of Turkey and Overseas Chinese Banking Corporation of Singapore might be affected. The Indian banks have a string of local branches serving immigrant communities.
Some American banks, including JP Morgan and Citigroup, also have UK branches, but were less likely to be seriously hit because they also operate UK subsidiaries, analysts said.
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The crackdown goes further than a consultation by the Bank’s prudential regulation authority in February, when it suggested that the branches might be able to trade if there were a “very high level of assurance” from the regulator in the parent bank’s home country.
Simon Morris, a regulatory lawyer with CMS, said that the new rules would present the banks with higher costs because in converting to a subsidiary they would have to set aside ringfenced UK capital and create systems and controls to satisfy UK regulators.
“Some may prefer to shut up shop and go home,” he said. “There is a trade-off here between creating a pure and secure banking market and keeping it competitive.” Three UK branches of non-EEA banks have between £100 million and £499 million in deposits and another four have deposits of more than £500 million, the Bank said, declining to name them.