ring fencing

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Ring Fencing

The practice of a company creating a legal entity separate from itself in order to protect certain assets. For example, ring fencing may protect assets from taxation, regulation, or allow the company to hide it from creditors. Ring fencing often makes use of offshore accounting. It is usually legal, but there are limitations, such as maximum amounts that may be protected.

ring fencing

The legal walling off of certain assets or liabilities within a corporation. For example, a firm may form a new subsidiary to protect, or ring-fence, specific assets from creditors.
Case Study California's electricity deregulation of the late 1990s resulted in the state's electric utilities hitting the financial wall by 2001. Unable by law to raise the rates it charged its customers, the utilities lost billions of dollars buying electricity at rising wholesale prices during an energy shortage in the western United States. To protect one part of the company, publicly traded PG&E, parent of Pacific Gas & Electric, in January 2001 ring-fenced its National Energy Group, which was then able to obtain its own credit rating and borrow money when the remainder of the company was shut out of the financial markets. In April 2001 Pacific Gas & Electric filed for bankruptcy while protected National Energy Group continued to borrow funds for trading power and purchasing turbines. The ring-fencing protected National Energy Group from Pacific Gas & Electric's creditors, which, in turn, allowed the company access to the capital markets. Critics claimed the financial maneuver was an abuse that unfairly shielded assets from creditors.
References in periodicals archive ?
Earlier this month, WRU performance manager Geraint John told the BBC: "The ring-fencing is in for this season and in for next season.
The ICB's assumption is that imposing losses on creditors will be easier with ring-fencing.
However, in his Mansion House speech, the Chancellor expressed the UK government's support for the key proposal of ring-fencing of retail banking activities.
While a ring-fencing proposal would not be as drastic as recommending that groups split their retail and investment banks into two separate companies, analysts say it could put onerous new capital requirements on the top UK lenders.
Complete ring-fencing of target populations is the ultimate step in identifying the existence and structure of reservoirs.
The Financial Conduct Authority (FCA) has warned that new rules that are to be implemented as part of ring-fencing of British banks are also a golden opportunity for hackers, Bloomberg has reported.
Sources at the bank said the Financial Conduct Authority (FCA) and the Bank of England's Prudential Regulation Authority (PRA) gave HSBC UK the green light on Monday, putting the lender on track to be ready well ahead of the ring-fencing deadline in 2019.
The PRA raised the prospect of higher costs of banking services, saying that firms "may look to pass on the higher costs associated with ring-fencing to customers".
By ring-fencing this money, we would be able to prioritise training and recruiting a 1,000 extra doctors in Wales, protecting local services, and integrating health and social care so care for our elderly and vulnerable is planned seamlessly and with dignity.
Former Barclays chairman Sir David Walker had earlier said the arguments for ring-fencing had become redundant.
The Bank of England on Thursday revealed that the Prudential Regulation Authority (PRA) is required under the Financial Services and Markets Act 2000 (as amended by the Financial Services (Banking Reform) Act 2013) to make policy to implement the ring-fencing of core UK financial services and activities.
SIR John Vickers, who chaired the Independent Commission on Banking (ICB), yesterday said he "would not resist" a complete break up of banks if so-called ring-fencing fails to achieve its desired effect.