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Thursday, 17 September 2009

Narrow Banking gets expert support

When the government had the chance to implement banking reform, when the iron was still hot enough to strike, I strongly advocated the splitting of retail banking operations from the buccaneering side of banking. Only the retail side should have government protection guarantees, and it would need to be tightly controlled, I said. The whole risky investment banking side would have to stand or fall by itself, and not a penny of tax money should ever be spent baling it out.

I'm sure some of you thought it a simplistic and naive solution from an amateur. Still, at a point in time it was do-able - the government would have faced little argument from a banking sector with all the wind knocked out of it. That time is past, the sector has recovered its arrogance and would place every obstacle imaginable in the path of government who now wanted to engineer such a split.

The CSFI's John Kay has now belatedly jumped on the bandwagon with a new report recommending exactly the measures I did. Retail deposits, loans, the payments system, business banking and the rest all within 'Narrow Banks', as tightly regulated as water, gas and telecomms. The casino operations, together with their massive bonuses, to be in an unregulated but unsupported sector earning tax and revenue for government but as expendable as goldfish.

The banks have learned only one thing - that if they're big, and they've got retail banking tied up in their investment operations, then governments won't let them fail. It's time to disabuse them of this guarantee. Brown's enduring incompetence and dithering missed the right tide for this, and it will now be harder to do, but Cameron must surely have the strength to carry this through.


Anonymous said...

Of course you realise that Brown never, ever had any intention of doing any such thing. Don't forget, Brown cooked up this scam in the first place. He creamed off the bank's "profits" and used it as a gigantic tax slush fund to pay for all the aparachiks, quangos and otherwise prod-noses that now infest our land. Without such bankers being able to fund this scam...err, scheme, he has no-one to bank roll the inflated salaries and pensions of his party faithful.

Coney Island

Budgie said...

HBoS was the biggest British bank failure. According to Lloyds most of the the losses were on property: particularly loans and equity stakes at the wholesale level, as well as its retail mortgage loans.

Like RBS this is ineptness, not the result of investment banker complicated dealings. However, I do have some sympathy for HBoS, because they were suckered into the property boom by Jonah Brown.

Bill Quango MP said...

There is mileage in this. Tesco are keen to take stakes in the government sell off of its stakes in burnt out banks. Could be a good starting point. They are very keen on retail banking to go with their operation. Chuck in the 12,500 Post Offices in a 'people's bank' and its almost a whole new industry ready for regulation.

Nick Drew said...

Bill is right.

But see also Barclays cunning stunt of this week - it won't be easy to engineer separation