Government to raise bank protection threshold to £35bn in a boon for Chase and Marcus

The Government is set to give the green light to a move to increase the bank protection threshold from £10bn to £35bn.

In a written ministerial statement, City Minister Tulip Siddiq announced a package of reforms to “enhance competition and competitiveness” in the UK banking sector.

The move will allow banks to accumulate £35 billion in customer deposits before having to separate retail banking operations from riskier investment banking operations.

US investment banking giants JP Morgan and Goldman Sachs, owners of the popular Chase and Marcus deposit accounts in the UK, will benefit from the change, and it could result in them offering higher savings rates.

Chase and Marcus are not isolated from the broader operations of investment banks, so the £25bn cap was a barrier to the growth of their deposit taking.

In 2020, This is Money revealed that Goldman Sachs-owned Marcus had to close its market-leading easy access account to new clients because it came close to breaching the £25bn limit.

At the time, Marcus had attracted around £21bn from more than half a million UK savers since its launch in 2018 at a rate of £1bn a month.

Safeguard requirements were introduced to protect customer deposits after the Government bailed out failing banks during the 2008 financial crisis.

Under current rules, core banking services, such as taking deposits, withdrawing and providing loans to UK retail customers, must be separated from investment banking and international banking activities.

“The reforms will improve competition and competitiveness in the UK banking sector and improve economic growth, while maintaining financial stability,” Siddiq said.

The reform package will also introduce a new “secondary” threshold that will exempt retail banking groups from the safe harbor rules, as long as investment banking activity represents less than 10 per cent of their tier one capital.

Under the plans, new flexibilities will also be introduced to allow covered banks to operate globally, subject to Prudential Regulation Authority rules.

The changes follow an independent review of the safeguarding regime led by Sir Keith Skeoch in March 2022, which made recommendations to improve the functioning of the safeguarding regime and the increase is believed to have been close to occurring under the previous government.

The Government said it would implement the reforms “as soon as parliamentary time permits”.