Ring-fencing is a key element of the wider regulatory reform agenda designed to ensure that the banking sector can support the economy in a strong and sustainable way. That was the key message from a speech given by Lloyds Banking Group chief executive, António Horta-Osório, at today's British Bank Association (BBA) Retail Banking conference in London.

He argued that – together with new capital rules, improved liquidity and better regulation – the move will ensure banks are no longer a burden for the British taxpayer in case of failure and will also drive sustainable economic growth. “To people who say ring-fencing is too burdensome, I would simply say that having an effective ring-fence can, over time, reduce the level of capital required in the banking sector.”

Horta-Osório also acknowledged that the sector still has a long and challenging journey to rebuild customer trust following a series of revelations about past practice in the sector. He is, however, optimistic about the future, and argued that the sector could – and should – use the opportunity presented by current reforms to change for the better. But he warned “the regulation burden will only stop growing once the public and regulators trust us to manage our sector in a responsible manner."

He stressed the benefits that competition brings for customers, pointing to the entry of new challenger banks, and to the successful introduction of the seven-day Current Account Switching Service, as providing further competitive stimulus. He also pointed to the emergence of new entrants as forces that will drive competition and shape the industry. “New technology entrants to the market are bringing new ideas and new approaches to providing products and services that have the potential to disintermediate banks from the role that High Street banks have traditionally played in the economy – a challenge, but one that puts the customer first," he said.

Horta-Osório concluded: ““What I would ask of those in political and media circles is to accept that clearing up our past mistakes will take time and there will be challenges on the way. But we are doing the right thing by customers through embedding a new culture and forcing the sector to change for the better. I passionately believe that the simple, low risk, UK-focused retail and commercial banking model that we espouse is the right one. If we continue to adapt and shape our offering around customer needs – and not the other way around – and we do not become complacent, then I can only see reasons why Lloyds will continue to help Britain prosper for many years to come.”

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