Our analysis suggests that if retaliation is pervasive, the outcome for a host country of “ring fencing” will be worse than it was in the beginning. Its local banking companies will become riskier, perhaps dramatic. This is analogous to the “prisoner`s dilemma,” an economic paradox where each participant tries to gain local benefits, but ends up being worse off when others also pursue their own incentives. If local incentives are strong enough, a negative outcome may seem inevitable. In economics and finance, cantonment or cantonment occurs when part of a company`s assets or profits are financially separated without necessarily functioning as a separate entity. In 2008, economic and market pressure led large banks such as Fortis Bank or Lehman Brothers into an unforeseen and uncoordinated collapse. These failures in the “crash landing” surprised many and caused losses to companies in the countries of origin and destination. This suggested that the smart strategy for regulators was to act aggressively to protect local operations and reduce the risk to their national interests. The separation of activities in a subsidiary and the subsequent need for significant local capital and liquidity resources has become a common strategy. This conclusion was rational in 2008 when there was no legal system specifically designed to deal with a systemically important bank collapse, no contingency planning, and (in particular) no pre-placed bail-in capital that could be converted into new capital.2 In such circumstances, banks were said to be “internationally in life but nationally in death.” 3 The bail-in decision paves the way for a much better solution to the “circular fence” problem. It provides funding to support collaboration between home users and hosts and to protect local affiliates and their critical functions. The straw man in our article tries to improve the resilience of the group by a transparent and mutual dismantling of the “ring fencing” barriers. Hosts are protected by ongoing asset maintenance requirements, as well as overridden “defunct” resources to ensure compliance (see document for details).
This proposal departs from the current regulatory approach, whereby most of the rules on external capital7 have been implemented without taking advantage of these global implications. Many people have argued that the solution to cross-border banking is to improve regulatory “trust”. We suggest that a better approach is to build this trust on a solid foundation of informed and well-funded self-interest. Host regulators can all benefit from the lower global risk of a less “isolated” institution if they can accept some degree of “mutual disarmament.” They can improve local security and resilience by replacing rigid “silos” with a broader framework designed to ensure both host protection and global resilience. Building this “great road” won`t be easy, but the benefits for financial resilience and economic performance are great and worth it. Due to the 2008 financial crisis, the UK`s largest banks are required by the Financial Services (Banking Reform) Act 2013 to seal their retail banking operations in order to increase depositor protection. [6] Ring fencing requirements came into effect on January 1, 2019. [7] According to the requirements for the assignment of banks to the UK, these retail transactions must be carried out through separate companies and sub-groups within each major banking group. [8] The Prudential Regulatory Authority is the main regulatory authority for ring-fencing and is responsible for determining which banks fall within the scope of the ring-fencing legislation and for supervising the implementation of the rules by banks. [9] The movement of part of the assets abroad to reduce an investor`s net worth or reduce taxes due on income is an example of ring-fencing. Ring closing can also describe limiting the purpose of the assets to a specific purpose. For example, a savings account can be reserved for retirement.
A company can seal its pension fund to prevent it from being drained for other business expenses. This can also be done to make the money unavailable for other purposes. This is the intention of a new UK law, known as the Ring Fencing Act, which came into force in early 2019. The parent company may also benefit from circular closure; Bond investors prefer to see utilities closed because it implies greater security in bonds. In addition, the parent company is generally freer to expand its unregulated lines of business once a fence is in place. The various states are primarily involved in shutting down public services within their borders, as there is currently no federal mandate requiring all public services to be affected. In the case of loans or bonds, ring-fencing generally allows an investor to have a connection with a particular asset they own (for example. B of utility-owned wind farms) and to benefit from full credit support from the balance sheet of a public service. .
