The UK government will loosen ringfencing regulations that separate retail banking from riskier activities, potentially freeing £80bn in additional lending capacity. Treasury minister Lucy Rigby said the reforms maintain crisis protections while supporting economic growth through more efficient capital allocation across the banking system.

Ringfencing rules, introduced after the 2008 financial crisis, require major lenders to isolate UK retail deposits and small business accounts from complex activities like hedge fund financing and derivatives trading. Banks argue these restrictions cost £1.5bn annually and harm competitiveness, though Barclays CEO CS Venkatakrishnan previously supported maintaining the regime.

Under the changes, ringfenced banks can allocate up to 10% of assets for activities supporting the real economy, including lending to public institutions like the British Business Bank. The reforms also permit expanded hedging activities and shared IT services within banking groups. These adjustments form part of Chancellor Rachel Reeves' Leeds reforms to modernize financial regulation.

The regulatory shift coincides with Bank of England deputy governor Sam Woods' departure, who led prudential regulation and previously authored the 2011 report recommending ringfencing. Katharine Braddick, former Barclays executive, will succeed him. The changes affect the UK's five largest banks: Lloyds Banking Group, NatWest, Barclays, HSBC and Santander, each holding over £35bn in customer deposits.