Ring-fencing means protecting a firm from excessive risk taking and the resultant failures. Ring-fencing has been a major theme of post-crisis (2007) financial sector reforms.
The most common function of ring-fencing is to protect a firm from becoming subject to liabilities and other risks associated with bankruptcy. For example, for a bank, the assets of its commercial banking operation will be ring-fenced from its operations in the high-risk derivative business.
