Moody's, no to London for bank reform

A proposal by British banks to separate the investment activities of institutions to protect taxpayers from future crises has been rejected by rating agencies as harmful to bondholders. This was stated today by Moody's which believes that if ring-fencing were put into practice, the chances of a downgrade in the sector would increase.
The proposal envisages the raising of security barriers around the retail sector, i.e. the deposit network, to separate it from the investment banking sector. A move that he hopes, in the event of a financial crisis, to safeguard private taxpayers.
Yet yesterday the British Finance Minister Georges Osborne had proclaimed his agreement with the indications provided in this regard by the Independent Commission on Banking (ICB) which asked that the structure of the banks allow the retail sector to be protected and remain unscathed in the event of a crisis . Not only that, the minister has also shown himself in favor of increasing capital ratios for banks and the ICB has proposed that the top 10 British retail banks have a core tier1 of at least 10%.
Moody's, however, disagrees. According to the rating agency, in the event of a new crisis, any entity located outside the operational barriers will have difficulty accessing public funds, which means that these businesses could be left to fail while the retail ones would be protected. Therefore existing bondholders, finding themselves largely outside the protected entity, would be harmed by these "ring-fencing" measures.
Moody's also threatened to downgrade 14 British banks as authorities appear less inclined to public bailouts of lenders going forward.
The ICB is expected today to release draft financial regulation legislation which would abolish the Security Authority (FSA) and transfer most of its powers to the Bank of England.