Duncan’s Economic Blog

Banking Reform

Posted in Uncategorized by duncanseconomicblog on January 27, 2011

The public responses to the Vickers Commission on banking are online and worth a look.

I especially recommend taking a moment to read Sir George Mathewson’s views. This former CEO of RBS, and the man responsible for the takeover of NatWest in 2001, recommends that both RBS and Lloyds should be broken up.

FT Alphaville has some excerpts and suggestions as to where to start reading. (Like them I am most amused by Nigel Lawson’s suggestion that the Commission read a couple of chapters of his memoirs!).

We are seeing a clear divide open up, many outside experts and former bankers are calling for radical reforms – the banks to be broken up, retail and investment banking to be separated, etc. The big banks themselves are digging in and defending their business model.

I would, again, recommend that those interested in this debate that a look at Mark Blyth’s recent piece on how the old model may well be broken and at some of the issues raised in my own recent post on banking.

I suspect the final report from Vickers et al will make for interesting reading. But with Vince Cable emasculated, will George Osborne be prepared to do anything that damages the resale value of our stakes in RBS and Lloyds?

I rather suspect his desire for a pre-election war-chest to fund tax cuts will trump reform.   

PS – For what it’s worth I’d favour some from of separation between retail and investment banking to make protecting deposits more straight forward (and I’d settle for separately capitalised structures within the same group), the remutualisation of Northern Rock (I did a quick post on why this makes sense back in 2009), the break up of the “too big fail to banks”, the introduction of more competition, the establishment of a state investment bank and green investment bank, and a focus on new regional banks.