Opinions: Breaking up the banks

28th January 2011

Breaking up the banks is obviously hard to do. But opinion divides on whether we should do it at all and how. This week the UK banks themselves argued that they don't need to be broken up.  They argue that the resulting ‘narrow banks' would be more risky not less, while suggesting that new regulations on things like capital adequacy are enough to prevent a crisis – reported here in FT.com .

Most pundits suggest that the Government's banking reviewer Sir John Vickers does not want a full break up but wants to ring fence the retail banks from other activities.

The Economist has a query however.

In its leader column, it asks whether simply ring fencing the retail bank makes them safe. It points out, unhelpfully, that in many instances in the UK, it was the retail bank where the problems arose with imprudent mortgage or business lending.

The Deputy Prime Minister Nick Clegg waded into the debate too. Like many of his Lib Dem colleagues – Vince Cable being the most vocal, he calls investment banks ‘Casino Banks' and wants strong consideration given to a split.

The Conservative position is thought to be less radical. In fact, the PM David Cameron was warning about bank bashing only a few weeks ago.

However the week has brought some surprise advocates of the break up. 

Veteran Scottish banker, Sir George Mathewson, who used to run RBS, suggests that rather than break up investment and retail, the Government should break some giant banks into smaller ones. RBS and NatWest should be split, he says, even though he masterminded the original merger.  Lloyds and HBoS should split too but he wouldn't stop there with HBoS subsequently broken up into Halifax and Bank of Scotland. Here is The Scotsman's report .

Sir Peter Burt, former deputy chair of HBOS agrees as reported here by the Daily Mail .

On the Scotsman, commenter Pict takes a very Scottish point of view.

He writes: "If they break up RBS I can see it being pinched from under our noses and most of its parts being head-quartered in London just like HBoS was when it merged with Lloyds.

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