A banking split

Nickle

Just give the first 50K of deposits priority in any liquidation.

Andy

Ridiculous idea.

We have some of the best and (once) biggest banks in the world because they have grown and adapted.

Under Broon's woeful management some were able to take ludicrous risks (unsupervised) and now we have the politicos screaming that big banks are bad.

Don't drive them abroad. How much corporation tax has the Treasury received from our banks in the last 20 years?

anne allan

I hate to say this, but I agree with Vince Cable. Weren't the US's problems caused by Clinton repealing the Glass-Stegall Act and bullying the banks into lending to people who hadn't a hope of ever meeting their mortgage commitments?

David Bouvier

Who is he to talk - Mandelson is the unacceptable face of politics.

If it is OK for Vince Cable, oil economist, to be minister for business and education, then why should a successful investment banker be unable to be CEO of an investment plus retail banking group.

This is not a coherent argument, it is mob politics.

Put it is this way: who is more likely to do well running Barclays: Bob Diamond or Vince Cable?

Baron

if the Government keeps listening to this badly attired twerp called Vince we will not only lose alot short-time on tax as the banks leave, but long-term, too. Regulations’ s bad, the more the Government regulate the more they will have to share responsibility for any future disaster. The Government should set, and if need be re-set, or add clear rules, but regulate as little as possible. If the banks screw up, let them sink and do what Nickie says @ 9.18 funded in part by the banks insuring against failure.

Vince’s idea of splitting the banks goes beyond the borders of insanity. It would be akin to abandoning cars, going back to horse driven carriages. The success of the West, and yes, it has been a success just look at some of the old amateur movies from some 70 years back screened each night on the BBC, has been due to credit creation; it was only when the politicians began using banking as an extension of the Welfare system that things went pear shape.

and lastly: Diamond’s a 1st class choice for Barclays, the next few years will see deals galore in restructuring, mergers and stuff as capital shifts away from the public to the private domain, unless of course the two boys lose their nerve.

Simon Stephenson

What we have in banking/finance is a major principal-agent problem, with society in general as the principal. If we fail to understand this, if we plough on in the belief that the errors of recent years are just the frailties of humans seeking to stretch the common interest to its limit, then in a year or two's time we'll be in the same position as we were in October 2008. Major new assets and liabilities will have been created, with an agents' cut being taken each time, only for it to be "discovered" once again that much of the value of the assets is an illusion.

Just wait and see.

oldtimer

It is worth recalling that Lehmann Bros - whose collapse triggered the crisis - was (1) a pure investment banking play;
(2) at least 25% owned by employees;
(3) who took a big share of pay in deferred compensation by way of equity.

The Lehmann problem was wildly excessive risk taking, exemplified by leverage of 30.7:1, much lent against the insecurity of dodgy mortgage and real estate assets.

The Cable "solution" of separation would not deal with the cause of the Lehmann problem - they were already separated. Higher capital ratios and living will arrangements offer a better route to a solution.

Tom Burroughes

Politicians bashing Bob Diamond would do well to remember that Barclays has not asked for, nor needed, a penny of public funds. Indeed, it has avoided the worst of the credit crunch and is a well capitalised bank. Diamond has played a big part in this.

When a politician out there can boast the same level of financial skill, they will be entitled to throw rocks.

R

Splitting the banks isn't going to happen because it's a silly idea.

There will be some form of regulation based on monitoring and controlling the extent to which banks can 'cross-subsidise' between retail and investment banking operations; this will have some impact on Barclays, RBS, HSBC.

It's a pity that we have to spend ages on a political process (consisting of media briefings from SPADs about various silly propositions etc) before actually doing what is fairly obvious.

Complex, detailed, specialised, boring, stuff like financial services regulation is hard to do in a democracy.

TomTom

Lehman and Bear were also trade-clearing houses for hedge funds like LTCM which collapsed in 1998 with phenomenal leverage. It is not simply the I-Bank but its disintermediation to hedge funds and the risk of credit lines from commercial banks for leveraged trades pushed ever-higher by derivatives and options - where noone has an overview of the credit lines nor the full exposure.

These funds do not report to the SEC in REAL TIME

Percy

@anne allan

spot on

Simon Stephenson

Yes, David Bouvier (9.50am), it's ad hominem nonsense, but at the same time very much in tune with an age where the tabloids and the popular broadcasters set the tone of the argumentative techniques to be used, even at the highest level of decision-making.

Cuffleyburgers

Well we all know Cable is an idiot.

V. good post on this issue by A Very British Dude.

Pete

Spot the common denominator

Scotland twice
Halifax
Northern
Bradford
Bingley

Simon Stephenson

Baron : 10.17am

"The success of the West ... has been due to credit creation"

Can you actually establish causation here? Besides credit creation, there have been a great number of other developments that have been coincident with the growth of Western prosperity. For example, the Parkinsonian growth of activity within the public sector. Would you argue that this, too, has been contributory to "the success of the West"?

The other point, of course, is that even if the expansion of credit can be shown to be a positive causitive factor in the growth of prosperity, this does not, per se, allow one to conclude either that no other path would have been as good, nor that outside the specific area of economic growth the expansion of credit hasn't caused problems and difficulties that would otherwise have been avoided.

Ian Walker

Surely it's not beyond the wit of the G7/G20 to implement a common Glass-Stegal-alike policy? Then the tax dollars have nowhere to flee.

Personally, I'd call their bluff. RBS and Northern Rock are going nowhere, and it wouldn't be hard to get a "Bank British" movement going. You take your tax dollars, we'll take our savings and mortgages.

David Ossitt

Can some coffee houser out there answer me a question?

I am obviously looking for someone who has the knowledge to answer me.

My question is, if a bank such as Barclays were to split in two, either voluntarily or because government legislation forced them to do so, what would be the effect on existing shareholders?

PeterR

Diamond is a very talented investment banker, whether that makes him suitable for a major role in retail banking is another matter.

He is going to need to 'de-tune' himself.

Baron

Simon Stephenson @ 2.56:

good points, of course, you right, there were many causes that have contributed to the truly phenomenal growth in the living standard of the West, the availability of credit being one of them, most likely a key one, I reckon.

the list of inherent features of capitalism cannot exclude the bankruptcy of the inefficient or reckless. Taking risk, another genetic feature, is another matter. A car maker takes a risk with its new model, as does a bank with a new financial instrument. One can insure against risk, one cannot eliminate it altogether, no regulatory set-up will do it.

what the new framework of rules for the banks should ensure ain’t the elimination of risk (it’s up to the banks to make that judgment). Rather, it should create an environment in which their screwing up doesn’t require the taxpayer to bail them out.

TomTom

"a common Glass-Stegal-alike policy"

Margaret Thatcher and "Big Bang" 1986 undermined Glass-Steagall. It gave Us banking corporations the means to circumvent the restrictions just as Eurodollars allowed them to circumvent Regulation Q in the 1960s.

There is always a lax jurisdiction - usually an island off Continental Europe - ready to have regulations laxer than the US to attract business to London.

Whenever the Feds tighten the British advertise themselves as "free and easy" and every Mansion House Speech is full of preening British finance officials boasting how anything the Americans can make tighter the British can make looser.

Take a look at LIFFE and the anonymous trading driving up commodity prices and spiking oil. wheat, cocoa.

Maybe the British should be brought under direct EU/US regulation so it ceases to be a Malta/Gibraltar/Cook Islands jurisdiction ?