The Treasury is preparing to water down a key recommendation in the Vickers report that would protect savers in the event of a bank going bust, according to reports.
The Vickers report called for retail depositors to be paid back before all other creditors if a bank collapses.
Investors and banks have argued that could risk destroying the market for bank debt and cause corporate deposits to flee the UK.
The argument is one the Treasury finds convincing, according to sources familiar with its thinking, City AM reports.
As a result it plans to drop the recommendation on "depositor preference" from the final version of Vickers implemented by the government, according to sources, on the grounds savers with up to £85,000 in the bank are already protected by the FSCS.
Giving retail savers additional protection could result in corporates moving their money abroad and bond investors demanding more collateral as they are moved down the debt hierarchy.
City A.M. also understands that the Treasury is prepared to take a selective approach to the capital regime laid out in Vickers.
HSBC and Standard Chartered, the banks most likely to leave the UK, have lobbied against the requirement that they issue billions in bail-in bonds - bonds that can be written-down in the event of the bank's collapse.
The requirement could be dropped entirely for the non-retail side of banks that are outside Vickers' recommended ring-fence, potentially in favour of setting rules individually with banks.
The Treasury is also set to solicit views on how detailed its legislation should be in setting out the terms of the ring-fence or whether the details should be left to banks and regulators.
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