Barclays and HSBC clash over repealing Britain's bank ring-fencing rules

LONDON (Reuters) -Senior executives at two of Britain's banks disagreed over proposals to repeal the country's post-crisis bank ring-fencing rules at a hearing of lawmakers on Tuesday, with the head of Barclays UK saying it could undermine financial stability.

Bosses from HSBC, Lloyds, NatWest and Santander UK said they supported scrapping bank ring-fencing in a letter to the finance ministry last month.

Changing laws that require banks to separate retail depositors' savings from banks' riskier activities would help kickstart growth, Ian Stuart, head of HSBC's domestic British bank, told UK lawmakers at the hearing.

"We have two banks in the UK, a ring-fenced bank and a non-ring-fenced one, and we can't move capital between them... just being able to do that would help businesses in the UK today," he said.

Such a change could however undermine financial stability and the public's trust in the sector, said Vim Maru, Chief Executive of Barclays UK, which did not sign the recent letter.

The rare public disagreement by two bank bosses over a key part of Britain's post-crisis efforts to shore up the banking industry underscored the challenge facing Britain's Labour government which is desperate to kickstart economic growth.

Under pressure from lawmakers, the country's financial watchdog has said it will reevaluate its approach to risk to boost growth, and its antitrust regulator has likewise been told to get behind the push for growth.

The split between HSBC and Barclays over whether to unshackle Britain's banks from ring-fencing rules could in part be because of the different ways in which those banks have implemented the rules, Conservative lawmaker John Glen said at the Treasury Committee hearing on Tuesday.

Barclays, in addition to its ring-fenced and non-ring-fenced entities, has created a third services unit which provides essential functions to both, reducing duplication of costs.

(Reporting By Lawrence White; Editing by Tommy Reggiori Wilkes and Emelia Sithole-Matarise)