Staff Working Paper No. 892
By Matthieu Chavaz and David Elliott
The idea of separating retail and investment banking remains controversial. Exploiting the introduction of UK ring‑fencing requirements, we show that this separation has a range of previously undocumented side effects for credit supply, competition, and risk‑taking in credit markets not directly targeted by the reform. By redirecting the benefits of deposit funding towards retail activities, ring‑fencing incentivises universal banks to expand mortgage lending. This rebalancing reduces the cost of household credit, without eroding lending standards. But it also increases mortgage market concentration, pushes smaller banks towards riskier lending, and is mirrored by a reduction in syndicated loans and credit lines.
This version was updated in February 2025.
Side effects of separating retail and investment banking: evidence from the UK
