FT: King calls for break-up of banks

King calls for break-up of banks

By Chris Giles, Economics Editor
Financial Times
Published: October 20 2009 20:15

Mervyn King, governor of the Bank of England, called on Tuesday 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.

Changing face of global regulation

The economic crisis has prompted governments across the world to re-
evaluate their financial regulatory frameworks

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
domestic and international banking reform.

The Treasury and the Financial Services Authority have specifically
rejected the idea of spliting 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's 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 Bank governor wants to see the utility aspects of banking --
payment systems and deposit taking -- hived off from more speculative
ventures such as proprietary trading. "There are those who claim that
such proposals are impractical. It is hard to see why," he said.

Although he said that ideas to force banks to hold debt that
automatically turns into equity in a crisis were "worth a try", he
downplayed their likely effect. "The belief that appropriate
regulation can ensure that speculative activities do not result in
failures is a delusion".

It is likely that Mr King's words will again irritate the Treasury. In
its summer white paper, the Treasury said there was no evidence that
separation would have worked to allow banks to fail safely.

Instead, it believes that the proposal for banks to arrange in advance
for their orderly death with so-called "living wills" would provide
effective separation in a future crisis.

Mr King, while supporting such wills, said their downside was they
required heavy regulation and costly oversight.

Many experts believe that the governor will get his way on separation,
but by default rather than by design, because proposals for tighter
capital regulations on risky parts of banking will make these
unprofitable and banks will choose to ditch them.


Lib Dems seek bank supertax

Banks are operating in such an anti-competitive and greedy fashion
that they should be subject to a "super tax" on their profits,
according to Nick Clegg, the Liberal Democrat leader, writes George
Parker.Mr Clegg has asked Vince Cable, the Liberal Democrat Treasury
spokesman, to look at a proposal to subject banks to a "premium rate"
of corporation tax, amid growing political anger at bank profits and
planned bonus payments.Rather than a one-off windfall tax, Mr Clegg
believes a new bank tax should be in force for a number of years,
pending the removal of all state support from the financial system and
the introduction of more competition. He told the Financial Times the
plan was "politically, economically and morally justified", arguing
that the money could be used to cut the structural budget deficit. The
Lib Dems also want to break up large banking groups and to close tax
loopholes to rein in excessive bonuses.

http://www.ft.com/cms/s/0/7056b56a-bda8-11de-9f6a-00144feab49a.html
[ Auf dieses Posting antworten ]