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Proposals for Ring-Fencing and Loss Absorbency - Essay Example

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The paper “Proposals for Ring-Fencing and Loss Absorbency” will discuss whether these measures likely to succeed in ensuring financial stability, high net worth individuals, prohibited services and how are these proposals being enacted into UK law…
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Proposals for Ring-Fencing and Loss Absorbency
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Download file to see previous pages The Commission was given up to the end of September 2015, to report their findings to the Cabinet Committee on Banking Reform. The white paper discussed many elements such as ring-fencing, high net worth individuals, prohibited services, SMEs for the purposes of ring-fencing, financial product restrictions, geographical restrictions, exposure to financial institutions, intra-group relationships, ancillary activities, legal and operational links, governance, economic links, scope, PLAC, PLAC composition, leverage ratio, loss absorbency, ring-fence buffer, bail-in, the bail-in process and depositor preference (ICB 2011, p. 19). Keeping in line with two of the stated topics above, this paper will describe the proposals for (i) ring-fencing and (ii) loss absorbency put forward by the 2011 Report of the Independent Commission on Banking (“Vickers Report”). The paper will discuss whether these measures likely to succeed in ensuring financial stability and how are these proposals being enacted into UK law.
Ring-fencing or ringfencing is a situation in which a fraction of a firm’s assets or profits are financially split without essentially being considered as a separate entity (Freixas & Mayer 2011, p. 397). This might be for:
Ring-fencing in asset protection is used by separating particular liabilities and assets into different organizations of a corporate group. At times, it is utilized to mitigate liquidation risk or to enhance corporate credit rating (Haldane & Alessandri 2009, p. 12). In the UK, ring fence profits stem from gains and income from oil rights oil or extraction activities in the UK plus its continental shelf and experience a higher rate from corporation tax (ICB 2011, p. 35). In the case of bonds or loans, ringfencing ensures that an investor has a link to a particular asset they possess. ...Download file to see next pagesRead More
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