MERVYN KING, governor of the Bank of England, called last night for banks to be split into separate utility companies and risky ventures, saying it was “a delusion” to think tougher regulation would prevent future financial crises.
Mr King’s call for a break-up of banks to prevent them becoming “too important to fail” puts him sharply at odds with the direction of British and international banking reform.
The British Treasury and regulator the Financial Services Authority have specifically rejected the idea of splitting up the banks, while the Conservatives think action in Britain alone along these lines would not be feasible.
Internationally, the proposals of the Group of 20, the Financial Stability Board and the Basel Committee have been aimed primarily at raising the quantity and quality of banks’ capital to make future banking failures much less likely.
Mr King borrowed Churchillian language in a speech in Edinburgh to highlight the burden banks had placed on taxpayers. “Never in the field of financial endeavour has so much money been owed by so few to so many. And, one might add, so far with little real reform.”
The forcefulness of Mr King’s language reflects his belief that the structure of the banks needs to be put firmly on the international regulatory agenda, where focus has been on strengthening capital and regulating bankers’ pay.
The governor wants to see the utility aspects of banking – payment systems and deposit taking – hived off from speculative ventures such as proprietary trading. “There are those who claim that such proposals are impractical. It is hard to see why,” he said.
It is likely that Mr King’s words will again irritate the Treasury. In its summer white paper, it said there was no evidence that separation would have worked to allow banks to fail safely. – (Copyright The Financial Times Limited 2009)
