a call for the break-up of banks

Mervyn King, governor of the Bank of England, yesterday called for banks to be split into utility companies (tightly regulated, with deposit insurance) and speculative ventures (unregulated, without insurance). This is an appeal for “narrow banking” or, less radically, “limited purpose banking”.

To paraphrase a great wartime leader, 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. ….

In other industries we separate those functions that are utility in nature – and are regulated – from those that can safely be left to the discipline of the market. [Our] … approach adapts those insights to the regulation of banking. ….

There are those who claim that such proposals are impractical. It is hard to see why. ….

The sheer creative imagination of the financial sector to think up new ways of taking risk will in the end, I believe, force us to confront the “too important to fail” question. The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion.

Speech by Mervyn King, Governor of the Bank of England, Edinburgh, 20 October 2009.

One Response to “a call for the break-up of banks”

  1. […] Thought du Jour Semi-daily posts, related largely to economics and government policy « a call for the break-up of banks […]