Why not break up the banks?

[Fittster]

Merv has made a speech:

"Mervyn King, Governor of the Bank of England, has thrown his weight behind breaking up the banks as part of wider reforms to protect the taxpayer from another financial industry meltdown.

In a speech to the Buttonwood Gathering in New York, he set out his vision for a banking industry that does not imperil the next generation. He warned creditors that "they will bear losses in the event of failure" and stressed that banks in the future must be "financed much more heavily by equity rather than short-term debt".

Addressing the option of separating investment banking from retail banking, he said: "If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets."

http://www.telegraph.co.uk/finance/newsbysector/ba...

Historical retail and investment banking were kept separate (Glass-Steagal) during which time there were no credit crunches that I'm aware.

If you split banks in two you don't end up with less workers, just the same number but some working for investment and others for retail. So we aren't talking about half of London suddenly finding themselves on the dole.

So what's the argument against splitting the banks up?

[MX7]

Fittster said:

So what's the argument against splitting the banks up?

If Merv says it's a good idea, it isn't.

[Fittster]

MX7 said:

Fittster said:

So what's the argument against splitting the banks up?

If Merv says it's a good idea, it isn't.

Paul Volker says break up the banks and he only has good ideas.

source

[MX7]

I thought you were an advocate of market forces making the decisions?

[Digga]

MX7 said:

I thought you were an advocate of market forces making the decisions?

I think the banks got so big they were the market forces, for a time at least. Then everyone realised it was a house of cards.

[GT03ROB]

MX7 said:

I thought you were an advocate of market forces making the decisions?

I think if market forces had their way many banks would no longer exist....so possibly not the right way to decide.....

[Fittster]

MX7 said:

I thought you were an advocate of market forces making the decisions?

I am but the banks and government have decided they don't want to be part of capitalism. So before the topic goes off track, what is the logic for not breaking up the banks?

[tamore]

Fittster said:

MX7 said:

I thought you were an advocate of market forces making the decisions?

I am but the banks and government have decided they don't want to be part of capitalism. So before the topic goes off track, what is the logic for not breaking up the banks?

i know one of the high street names is going through exactly this. 500-600 branches being bundled up to create a new bank.

[Digga]

Fittster said:

MX7 said:

I thought you were an advocate of market forces making the decisions?

I am but the banks and government have decided they don't want to be part of capitalism. So before the topic goes off track, what is the logic for not breaking up the banks?

Pepople will whinge about inevetable higher charges for banking sevices, but in dfact there has never been such an invention as a free lunch. People will have to learn to pay for services they consume once more.

This might then make customers more discerning about what they get for their money - not spending their lunch hour pressing buttons on their telephon keypad whilst talking to foreigners (i.e. being wkered about by the bank who has taken your money from you) and so on.

[BOR]

I don't in all honesty, know why the BoE doesn't set itself up as a retail bank. Cut out the middle man.

[MX7]

Fittster said:

MX7 said:

I thought you were an advocate of market forces making the decisions?

I am but the banks and government have decided they don't want to be part of capitalism. So before the topic goes off track, what is the logic for not breaking up the banks?

Michael Geoghegan, chief executive of HSBC, said that smaller banks would be less secure, and I sort of agree with him. Small companies are more likely to fold than larger ones. Also, "HSBC, Barclays and Standard Chartered – three of the UK’s biggest banks – have warned that they would consider relocating abroad should the committee conclude that universal banks must be broken up".

http://www.ft.com/cms/s/0/0b5e0220-c744-11df-aeb1-...

I'm not particularly enthusiastic about how dominant the banks have become, but it's our doing. How often do you see cards that aren't from one of the big banks? Not very often. It's like the supermarkets. We all bemoan when the local butcher or greengrocer closes, but it's only because we prefer to go to Tesco.

I don't think there's much that can be done about the size of the banks. People's attitudes don't seem to have changed since the banking crisis, so I doubt that they ever will. What's needed, as Geoghegan said, is better "capital requirements and enhanced supervision".

[Digga]

MX7 said:

We all bemoan when the local butcher or greengrocer closes, but it's only because we prefer to go to Tesco.

This is where laissez faire capitalism hits a bit of an impasse.

With a certain market share and economy of scale, a single business can suddenly become a monster. Tesco is a very good example.

I don't think any individual bank in the UK could be accused of being a Tecso, but nevertheless, the true choices avaoiable are possibly too narrow.

[Ozzie Osmond]

BOR said:

I don't in all honesty, know why the BoE doesn't set itself up as a retail bank. Cut out the middle man.

Well, the catch is they've already demonstrared they're not very good at running a bank!

[fido]

Ozzie Osmond said:

BOR said:

I don't in all honesty, know why the BoE doesn't set itself up as a retail bank. Cut out the middle man.

Well, the catch is they've already demonstrared they're not very good at running a bank!

Especially when Winky was the CEO, and the FSA was Risk Management.

[BOR]

Either way there had to be a bail-out, why not keep it in house?

[anonymous-user]

Fittster said:

So what's the argument against splitting the banks up?

1) Having/Being an investment/retail/universal bank wasn't the difference between safety and collapse. NRK? B&B? HBoS? WaMu? IndyMac?

2) In many cases - such as RBS - it was the investment bank within a universal banking group that kept said groups profitable after the fallout from the crisis (and therefore not in need of further taxpayer funds).

[Zod]

The argument is very simple: unless every potential home for the big banks agres that to legislate to split investment banking from corporate and retail banking, the large banks will simply move to a more friendly jurisdiction. They may have threatened before over tax, but that was a marginal issue. this one is fundamental.