Staff Working Paper No. 999
By Irem Erten, Ioana Neamţu and John Thanassoulis
We study the impact of ring-fencing on bank riskiness using short-term money markets. Ring‑fencing is when the government restricts some banking activities to a subsidiary of the group while restricting intra-group transfers. Exploiting confidential data on sterling‑denominated repo transactions, we document that banking groups subject to ring‑fencing are perceived to be safer – repo investors lend to ring-fenced groups at lower rates – and that the safety perception is amplified during times of market stress. We show that ring-fenced groups also intermediate more cautiously. Our paper suggests that structural reforms can create a ‘safe-haven’ bank in the financial system.
This version was updated in September 2025.
The ring-fencing bonus