[LONDON] The credit ratings of Britain's big banks could be hurt by plans to force them to separate their domestic retail banking operations, while costs for customers could rise, Standard & Poor's said on Tuesday.
The Bank of England is forcing lenders to set up a boundary around their high-street operations in an effort to protect taxpayers from needing to bail them out if a problem emerges in riskier investment banking activities.
Big banks must separate - or "ring-fence" - their domestic retail businesses by 2019, and they have to submit preliminary plans next month.
Ratings agency S&P said banks were likely to pass many of the costs of the separation on to customers, and that credit supply could be squeezed.
"More expensive banking services and less freely available credit may well be the price of having more resolvable banks," S&P credit analyst Osman Sattar said in a note.
S&P added the ring-fencing rules "will undoubtedly further constrain fungibility", or how much funds, capital and other resources can be shared across a bank.
"The sharing of resources (and brand, expertise, and economies of scale) means we view most banking groups as being more than the sum of their parts," the report said.
It said disrupting these benefits could lead S&P to have a weaker view of the group as a whole and to lower its credit ratings on some parts of the banks.
S&P said the complexity of separating functions "represents a significant operational challenge" for banks at a time of multiple other regulations.
The agency warned that ring-fencing could negatively affect earnings. The initial set-up costs could be substantial, and profits could be eroded in future if operating margins across the group were hurt by extra compliance and reporting costs and the duplication of some functions, S&P said.
The bank's funding and liquidity were also likely to be negatively affected, it said.