ICB ring-fencing could lead to covered cap

UK bank shares fell on Monday after the Independent Commission on Banking recommended ring-fencing the retail operations of UK banks in its final report. Mortgage lending will be permitted within the ring-fence, as will wholesale funding. However, the ICB proposes a wholesale funding limit, which could address concern that if mortgage backed assets such as covered bonds are included in the ring-fence, asset encumbrance would reach unacceptable levels.