King: Break Up Big Banks
Bank of England Governor Mervyn King is in Volcker’s camp. The banks that are “too important to fail” not only require new capital rules, but they must be made smaller won’t shield taxpayers from funding any future bailouts:
“The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history,” he said in a speech in Edinburgh late yesterday. He indicated that one solution could be to split up banks and separate riskier activities from more stable businesses such as taking deposits.Officials are debating how to rein in the world’s biggest banks after their near-collapse threatened to capsize the global economy. While King also said more stringent capital rules wouldn’t necessarily create a safety cushion large enough for banks to weather every crisis, his stance was at odds with that of Chancellor of the Exchequer Alistair Darling.
“Capital requirements reduce, but not eliminate, the need for taxpayers to provide catastrophe insurance,” King said. He added it is “hard to see why” proposals such as those of former Federal Reserve Chairman Paul Volcker to separate proprietary trading from retail banking are “impractical.”
It could be a campaign slogan: Volcker + King = Reform
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Source:
King Suggests Splitting Up Largest Banks to Stem Risk
Jennifer Ryan
Bloomberg, Oct. 21 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=aAdP3tUMTdVE
October 21st, 2009 at 6:30 am
King gave no indication in his speech whether the bank will expand its bond-purchase program next month. In an article he wrote for Scotland’s Herald newspaper today, he said that interest rates are “extremely low,” and warned Britons to prepare for increases “at some point.”
The bank’s rate-setting Monetary Policy Committee lowered the benchmark rate to record low of 0.5 percent this year. King said in his article posted on the Herald’s Web site that “I do not know for how long interest rates will remain so low. But at some point they will return to more normal levels and it would be wise to take this into account in your financial planning.”
October 21st, 2009 at 6:52 am
The appropriate response once (if) our economy begins to heat up would be to gradually raise capital requirements instead of interest rates. It serves the same function of taking the punch bowl away.
October 21st, 2009 at 7:02 am
Reform. Yet I now see the WH has taken CR’s approach on first time mortgage tax breaks, but it seems the congress is going to go ahead with it anyway. Now why would that be? Yes, correct. And now we want to reform the big banks. And what important non-marginalized position does Volcker have now? Yes, correct. And realistically, before the next election in 2010 what are the chances of reform? Yes, correct…
B in T.
October 21st, 2009 at 7:04 am
Darling Rejection
“You regulate according to risk,” Darling said before King’s speech. “The greater the risk, the greater the capital requirement. I don’t think an arbitrary split would deal with the problem.”
Excuse me, but I fail to see why a decision to separate commercial banking from market trading operations is considered an “arbitrary split”.
Yes, you do “regulated according to risk”, and the investment banks have demonstrated, by their near destruction of the global economic system, that they are a high risk venture. Accordingly they should not be allowed access to the deposits of savers or the discount window at the Fed.
October 21st, 2009 at 7:16 am
http://www.cnbc.com/id/33407587
Sense on the Dollar: Almighty No More
…and…
http://www.cnbc.com/id/33407237
No Tightening in Next Several Months: Fed’s Yellen
…This quandry about reform that Barry posted above, which won’t happen without a new congress, is like the above dichotomy. Andy T posted in this fashion yesterday on his web site about conflicting takes on Cat’s earnings for this quarter. One headline very positive, one headline very negative.
Reform is like these postings on the dollar as reserve currency. There is now no uniform thread in congress which will get us going on it. Oh, and by the way, they give money to congressmen. A small, but somehow important fact.
Will the dollar be the world’s reserve when the fed says “We are not going to defend it.” I doubt it. Some economic reporters as Barry posted, don’t even see this as a dollar collapse. Duh.
No, there are too many people now at the various feed troughs the government has created. Reform is getting LESS likely in my opinion, not more likely. We need an election….
October 21st, 2009 at 7:34 am
face it, the banks will be strangled next year by commercial and residential real estate, they are trying to trade there way to break even, i hate to say politics plays a role but it obviously does, obama and the dems don’t want more town halls in front of the mid term elections screaming he’s a communist destroying capitalism………..so next fall is probably when all these issues are finally addressed…..so we wait a year too see what’s what………………the fed has painted himself in a corner imho einhorn has said it best, everyone with half a brain understand that what we are doing is basically illogical and the probability for success is pretty low, the math just doesn’t work out
October 21st, 2009 at 7:39 am
“the math just doesn’t work out” I’ll bet there are some bankers over at Goldman Sachs who would dispute this statement. They have run the numbers on their bonuses and the math works out pretty good……
October 21st, 2009 at 8:11 am
This is a royal farce. Isn’t it Déjà Vu all over again…
Banking Act of 1933
A Congressional act designed to restore financial stability to the country during the Great Depression, through the creation of federal deposit insurance and the separation of commercial banking and investment banking through the Glass-Steagall Act.
October 21st, 2009 at 8:19 am
Oh yes, I just remembered… Bernanke was hired to not remake any of the mistakes of the 30s. I guess part of his experiment is to make banks bigger. And wouldn’t it be lovely if he got them to merge with insurance companies. Bankers could finally really understand the underwriting risks since they’d know their clients full picture including health concernes. lol
October 21st, 2009 at 10:00 am
@danm:
disrememberation is common enough now…and misdisrememberation is getting more common.
October 21st, 2009 at 10:09 am
Wall Street + Political Graft/Corruption = NO Reform
October 21st, 2009 at 10:37 am
I guess Obama has a judgment call to make. “Will I win more votes with bankers money than I lose from disgusted independents, moderates and traditional working class Democrats who see me as a puppet of Wall Street and a purveyor of elitist ideals at the expense of domestic jobs?”
“The Rasmussen Reports daily Presidential Tracking Poll for Wednesday shows that 27% of the nation’s voters Strongly Approve of the way that Barack Obama is performing his role as President. Forty percent (40%) Strongly Disapprove giving Obama a Presidential Approval Index rating of -13. That’s just a point above the lowest level ever recorded for this President.”
October 21st, 2009 at 11:40 am
Isn’t a retrun to the Gold standard the only way to exert some control over our totally corrupt political and Governance system?
October 21st, 2009 at 12:00 pm
@ philipat
I see a return to the Gold standard as only being effective in reigning in fiscal responsibility (spending). Graft and corruption are the result of human behavioral traits (greed).
October 21st, 2009 at 2:28 pm
Lets just go back to trading spices again
October 21st, 2009 at 5:00 pm
I got some really nice tulips……