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Britain 'powerless' to break up banks

Robert Peston | 09:28 UK time, Tuesday, 7 December 2010

The Banking Commission and the Treasury are in effect powerless to force through radical structural changes to the UK's banks, to break up the giant universal banks such as Royal Bank of Scotland, HSBC and Barclays, without agreement from the European Union.

Which may well turn into a great frustration for the Banking Commission's members, because my strong impression is that they are in favour of some kind of break-up of the largest universal banks - which would involve separating their retail banking and money transmission operations from supposedly riskier investment and wholesale banking.

To be clear, this break-up might not involve formal forced removal of investment and wholesale banking out of the likes of Barclays into wholly independent new organisations - which is broadly what the governor of the Bank of England, Mervyn King, seems to favour.

The preferred reform might consist of putting an impermeable legal wall between wholesale/investment banking and retail banking, so that if a bank ran into difficulties, the so-called resolution procedure would allow the regulator to hive off the precious retailing banking operation to protect savings and the money transmission network. This kind of internal resolution break-up is preferred option of Lord Turner and Hector Sants of the Financial Services Authority.

That said, right now the commission - which consists of former regulators and erstwhile bankers - seems to me to be leaning towards a definitive, physical break-up of the mega-banks.

However it turns out that neither of these major structural changes to our banks would be easy to do - in fact they might be impossible - without a decision by the European Union to force such reforms on all European banks.

"The UK's ability to force major structural changes on its banks is very very limited," said a source close to government.

The reason is that under EU law, any EU authorised bank has the right to set up a branch anywhere in the EU.

Which means, for example, that if Barclays did not wish to be broken up, it could move its head office to Luxembourg (for example) and then operate the whole of its retail banking and investment banking operations in the UK, as normal, in the form of a "branch" of the Luxembourg-based bank.

Also, any continental bank, such as Deutsche Bank or Santander, could operate both retail and investment/banking operations in the UK, even if Barclays, HSBC and Royal Bank of Scotland were somehow persuaded to comply with a British decision to break them up.

What does it all mean? "My own view is that the Commission may well recommend that the big universal banks should be broken up," said a well-placed British official. "But in practice, even if the chancellor accepts that recommendation, the Treasury would not be able implement it. Instead the chancellor would probably then have to persuade every other EU country to break up their giant banks".

So how likely is it that Germany would wish to break up Deutsche Bank, France would choose to dismantle BNP Paribas and SocGen, and so on?

Right now, that seems about as probable as France and Germany forcing all cars to drive on the British left-hand side of the road or to adopt British-gauge railway track: giant universal banks are part of the continental financial tradition: ingrained in European business culture, part of the structure of the state.

But that doesn't mean the European love affair with the mega universal bank is necessarily forever. As I have pointed out here on a number of occasions, the threat of a fracture of the eurozone stems as much from the potential liabilities of European taxpayers to the enormous risks that have been taken by some European banks relative to their smallish capital resources as from the unsustainable deficits of certain eurozone member states.

To put it another way, if the eurozone were to become the centre of another great banking crisis - not a completely absurd idea, given recent events in Ireland and Portugal - it is possible that the EU would decide that some form of break-up of the biggest banks was not some insane British obsession but was worthy of consideration.

Comments

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  • Comment number 1.

    The underlying assumption appears to be that the EU is not really interested in doing a Glass-Steagall on its banks. There is much that can be done in the UK especially as two major players are virtually nationalised and can perform the role of state supervised banks with standards and guarantees for both personal and commercial SME banking. As for the remainder there is a distinction in supervision over regulation. Things are not helped when recently governments have actually precipitated greater conglomeration with for example the progressive integration of HBOS and Lloyds (thanks to City worship by Brown).

  • Comment number 2.

    I think you'll find that the UK and much of the rest of the world, including SNCF and Deutsche Bahn, already use the 1435 mm (4 ft 8 1/2 in) gauge, so perhaps thete is light at the end of the tunnel after all.

  • Comment number 3.

    'Morning Robert

    So, we have surrendered control over our own economy. Opting-out of the Euro, with the apparent corollary that thereby we remained masters in our own house monetarily, as well as fiscally, has not in fact enabled us to decide for ourselves what we require of our banking and monetary system. Instead (even though our government set up the Banking Commission to examine and make recommendations about this very question) Britain is "powerless" to implement unilaterally anything it may recommend.

    It may well be so, and it was in any case always going to have been uncomfortable (to say the least) for Britain to go it alone by instituting genuinely mould-breaking reform. But that's not the same as being told that we simply have no say in the matter.

    Nevertheless, it's easy to see that this logic can't be faulted:-

    "The reason is that under EU law, any EU authorised bank has the right to set up a branch anywhere in the EU.

    Which means, for example, that if Barclays did not wish to be broken up, it could move its head office to Luxembourg (for example) and then operate the whole of its retail banking and investment banking operations in the UK, as normal, in the form of a "branch" of the Luxembourg-based bank.

    Also, any continental bank, such as Deutsche Bank or Santander, could operate both retail and investment/banking operations in the UK, even if Barclays, HSBC and Royal Bank of Scotland were somehow persuaded to comply with a British decision to break them up."

    So it would seem Britain has two choices. Either to dance to the other EU member-states' tune where the structure of our banking system is concerned (and since they aren't readily going to be persuaded to change, that means going on indefinitely with what we have now - until the next debt crisis at least). Or getting out of the EU, thereby regaining our sovereignty and becoming able once more to decide for ourselves what sort of monetary and banking system we want.

  • Comment number 4.

    Well I am sure many people will be upset but is it really so surprising?

    In my view banking regulation shoulld have been dealt with at an international level. If that is not possiible then surely the next best thing is for it dealt with at the European level.

    There is no point in the Banking Commission and the Treasury coming up with conclusions that are unworkable. They should have started out by trying to develop an approach that was likely to be consistent with what the French and Germans would be comfortable doing. Having got the French and the Germans on board it would be time to lean on the Swiss.

    Seems to me this government is developing a "EU get out of jail card". When faced with a difficult problem they say they can't do anything about it because of Europe. It would have some intellectual honesty if they were actually committed to dealing with certain problems at an EU level.

    The Coalition is in Europe just enough to use them as an excuse for not doing something but not far enough in to actually address problems at an EU level.

  • Comment number 5.

    Robert is mixing up his rail gauge

    http://en.wikipedia.org/wiki/Rail_gauge

    with his loading guage

    http://en.wikipedia.org/wiki/Loading_gauge

    however this is still a good metaphor for the whole discussion, where everyone thinks they are talking about the same thing but are actually not.

  • Comment number 6.

    So the banks are running rings round the government and using our money.
    Along with most contributors here my comment is - told you so!

    What to do?
    Tax bonuses to make them unattractive.
    Advise banks that we won't use taxpayers money to support their gambling.
    Set up State Deposit Institutions (not banks - I'm sure someone clever enough can devise that)
    Then remove the £50k guarantee from bank depositors and give it to depositors of the new SDI's. That should send a shot across the bows of the banks and be a popular move. Then the SDI's can be sold off once profitable and used to repay in part the
    cost of the money we've all contributed to the banks.

  • Comment number 7.

    "giant universal banks are part of the continental financial tradition: ingrained in European business culture, part of the structure of the state."

    Which means that they have been controlling us for a long time.
    Time to stop this and gain real freedom for the people.
    A first step would be to fully nationalise the rescued banks and turn them into clearing banks only.
    Take the power to create credit away from the private banking sector.
    All credit provision not 100% backed is to be created by the people through The Bank of England (already nationalised) and "sold" to private banks like cash (look up seigniorage).
    Then taxes could go down. We would then be able to have progressive policies like a social wage/credit from the proceeds of operating the money system for the benefit of all.
    A citizen's wage could support from student to pensioner without the need for borrowing.
    That should be the aim.
    This means the adoption of a re-distributive enlightenment instead of the current medieval trickle-down dogma.

  • Comment number 8.

    We don't elect a government to wring their hands and claim powerlessness. The financial crisis happened, the population impoverished, SMEs ruined, the next generation sold into debt servitude and it needs fixing.

    Austerity for the poor, tax breaks for the rich is not the answer.

    March on parliament on Thursday. See you there.

  • Comment number 9.

    3. At 10:53am on 07 Dec 2010, torpare wrote:
    'Morning Robert

    "So, we have surrendered control over our own economy. Opting-out of the Euro, with the apparent corollary that thereby we remained masters in our own house monetarily, as well as fiscally, has not in fact enabled us to decide for ourselves what we require of our banking and monetary system. Instead (even though our government set up the Banking Commission to examine and make recommendations about this very question) Britain is "powerless" to implement unilaterally anything it may recommend."

    No, the UK can implement the rules, but the people if affects are free to relocate.


  • Comment number 10.

    6. At 11:06am on 07 Dec 2010, pietr8 wrote:
    Then remove the £50k guarantee from bank depositors and give it to depositors of the new SDI's.
    =================
    Oh Oh, we can't do that because of EU.
    From next year the guarantee must go up to EUR 100,00

  • Comment number 11.

    Hang on a minute.

    If we have SOVEREIGN accountability for underwriting the banks, then we must take SOVEREIGN responsibility for supervising and controlling them!

    Do we have collective Stockholm Syndrome? I hope not. Given that modern banking creates ripe conditions for FRAUD, we had better take warnings like these very seriously:

    http://forensicstatistician.wordpress.com/2010/12/02/when-is-a-fraud-not-a-fraud/

    Otherwise our nation will just get LOOTED in the way of Iceland, Greece & Ireland.

  • Comment number 12.

    Robert, yet another rant against the Banks encouraging ill-informed comments from contributors who have, it appears, formed their opinions only by reading the BBC's finacial news.

    Perhaps the rest of the world has got it right! Why would anyone with any understanding of finance or indeed the concept of business want to destroy banks.

    Time and time again we have rants against supoport for the banks which is more correctly described as support for the economy and business in general

    Time and time again we hear "if only we had small banks". Presumably like Northern Rock or HBoS - perhaps not, as they are not shining examples of small banks.

    European and USA Governments and Banks are delighted as they watch and listen to the UK slowly destoying the most envied Banking System in the world. For my part I suspect that you will be satisfied only when you can write: "The City Of London my part in its downfall".

    And no I do not work for a bank, finance house nor indeed in any part of the financial sector

  • Comment number 13.

    #10
    that should be EUR 100,000 of course.

  • Comment number 14.

    Perhaps the Government has more leverage here than has been realised:

    Howabout:

    1) Only retaining the banking savings guarantee for those banks that play ball with Governments wishes. A Government statement announcing that "bank x is not complying with the governments wishes, and as such is running too much risk. And hence that, for this bank only, the Government savings guarantee will be removed."

    This should shift savings to the banks that do 'play ball'.

    2) Likewise, announce that henceforth the mortgage interest safety net provided to the recently unemployed will also only apply to the 'approved' banks: "as the Goverment considers it too risky to offer this guarantee to customers of bank x."

    This should shift mortgages from bank x to those that 'play ball'.

    3) Publicize this widely, so that the non-financially astute public will be aware of the extra risks of retaining accounts with non 'approved' banks.

    A combination of these measures would force a flight of sterling capital from the 'non-approved' banks to the approved banks. Thus forcing ALL banks to play ball or risk considerable damage to their reputation.

    Thus the Government CAN control the banks by restricting their customers' access to the social safety nets.

  • Comment number 15.

    9. At 11:22am on 07 Dec 2010, yam yzf wrote:
    3. At 10:53am on 07 Dec 2010, torpare wrote:
    Britain is "powerless" to implement unilaterally anything it may recommend."
    -
    No, the UK can implement the rules, but the people if affects are free to relocate.
    ---
    Come off it, yam, surely even you can't misinterpret the article that much.

  • Comment number 16.

    14. At 11:35am on 07 Dec 2010, noninterestingtimes wrote:
    Perhaps the Government has more leverage here than has been realised:

    Howabout:

    1) Only retaining the banking savings guarantee for those banks that play ball with Governments wishes.
    ===================
    I strongly suspect that that will not be legal under the new EU bank guarantee rules.

  • Comment number 17.

    Morning Robert,
    well Britain may be powerless to "break up banks", according to Sir Humphrey, but surely what we want to do is not have to bail them out again for their recklessness?
    So If Barclays or whoever wants to go and set up their head office in Luxembourg, then let them, on condition that Luxembourg has to bail them out when they fail again (which they will).
    If the EU won't see the sense of stopping the "too big to fail" syndrome then there really isn't much hope for anyone in the EU!
    I was listening to a discussion between the great and the good today and they still spout on about giving countries more time to pay back their debts. These were seasoned city financial types and I think that they still talk too much and don't listen enough.
    Greece, Ireland, Portugal, Spain are insolvent and they will NEVER be able to pay off their debts. Germany doesn't want to engage in fiscal consolidation because it will put up their interest rates and make them less competitive in world markets and who can blame them. Therefore, the only option left is an Argentine style of default, sorry folks we cannot pay and we will not pay-now do your worst. The result was that creditors received ultimately 30p in the pound, and Argentina has recovered enough to enter world markets again for capital.
    The only thing stopping proper market operation in the EU is the politicians who are desperately trying to appease their banking masters!

  • Comment number 18.

    Our Government are coming from the totally wrong direction, they should be saying as of dec 2011 , the tax payer is not going to support investment banking so any bank that does it, loses the right to use cheap cash from the BoE and the depositors guarantee is removed.

    Let them decide how they are going to get out of that.

    And as for the Euro banks they can go and take a run and jump they may be able to set up here but lack of access to cheap money will be a severe handicap and who is going to use there banks with no guarantee ???

    Its about time our leaders led this country and not just jumped to the bankers tune, far too much time and money has been wasted already going round in circles...

  • Comment number 19.

    Breaking up the mega banks into smaller chunks so that they can be allowed to fail would not prevent a future crunch. This "solution" is based on the faulty assumption that only individual or a small number of banks would fail at around the same time. Because of the volume of interbank lending, a domino effect would be likely, and this would be as bad as a single mega bank failure.

    Investment/wholesale banking would not work very well if it were separated by a firewall or physically from retail banking and money transmission, because it depends on the recycling of loans and investments via the wholesale market as they reappear as deposits.

    What is required is that banks should be more strictly regulated so that they do not take such big risks in the future. This would reduce the amount of purchasing power dependent on credit and make the system more stable. Extra money would need to be generated and injected into the economy by fiscal and monetary action by governments and central banks to replace the credit. This would provide much better levers with which to reduce the persistent inflation that is an intrinsic feature of the present system.

  • Comment number 20.

    #12 DecentJohn

    I'm intrigued by your stance. Do you actually understand banking and the way that it has evolved over the last 10-20 years?

    Here is a submission to the ICB which clearly states the underlying problems with modern banking. Not ill-informed rhetoric, not bluff and bluster. Just 100 hours of solid desk research:

    http://forensicstatistician.wordpress.com/2010/11/19/is-modern-banking-fundamentally-flawed/

    It is not Anti-banking or "Banker-Bashing", but instead anti speculation, anti Ponzi financing and anti fraud.

  • Comment number 21.

    19. At 11:56am on 07 Dec 2010, stanblogger wrote:
    Investment/wholesale banking would not work very well if it were separated by a firewall or physically from retail banking and money transmission, because it depends on the recycling of loans and investments via the wholesale market as they reappear as deposits.
    =================
    I think this demand for separation of investment banking from commercial banking is overdone. Bear Stearns and Lehman Brothers were purely investment banks; HBOS managed to get into trouble largely though property loans as did the Irish banks.
    Also Goldman Sachs, JP Morgan and no doubt many others get on quite well with no retail business.


  • Comment number 22.

    What about the two banks we effectively own Robert? Surely if we had the will we could make them change...

  • Comment number 23.

    19. At 11:56am on 07 Dec 2010, stanblogger wrote:
    Breaking up the mega banks into smaller chunks so that they can be allowed to fail would not prevent a future crunch. This "solution" is based on the faulty assumption that only individual or a small number of banks would fail at around the same time. Because of the volume of interbank lending, a domino effect would be likely, and this would be as bad as a single mega bank failure.

    Investment/wholesale banking would not work very well if it were separated by a firewall or physically from retail banking and money transmission, because it depends on the recycling of loans and investments via the wholesale market as they reappear as deposits.
    =======================
    I agree with the first part, but I believe that the benefit to be gained from the separation of retail from investment banks is over-rated. Bear Stearns and Lehman Brothers were purely investment banks. Northern Rock, HBOS and some Irish banks were mainly if not wholly retails and managed to lose vast amounts on dodgy property loans both commercial and residential.
    And Goldman Sachs, JP Morgan and many other investment banks manage to rub along quite nicely with no retail deposits.

  • Comment number 24.

    Accepting that the "single market" provisions of the EU seek to impose uniform trading conditions across all member-states (with the commendable aim of preventing countries giving unfair advantages to their own corporations), and that this must apply as much to banking as to any other sector, it would still be interesting to know just exactly how having a different currency impinges on this - in the banking sector specifically.

    Have the respective monetary authorities which preside over the different currencies - euro, sterling, Swedish and Danish crown, etc - powers to control how banking in their own currency, within their borders, is to be conducted?

    If so, might this not mean that if the Bank of England introduced new rules governing banking in sterling within the "sterling area" (ie the UK), any bank or branch of any bank operating within the UK could be forced to comply with those rules? Say, for instance, that the BoE were to prohibit banks from creating money in the form of loans IN STERLING? Foreign-owned banks would then have to decide whether to withdraw from the UK or to stay and observe the rules, but there would appear to be nothing to prevent banks in other countries (not only within the EU) making loans in sterling to UK residents under whatever regulations applied in their country. However, could not the BoE if it chose introduce exchange control regulations forbidding the transfer to UK residents of sterling from overseas?

    I suspect this is a completely unexplored area. Does anyone know?

  • Comment number 25.

    In the case of RBS the government is a principal shareholder but in the case of Barclays and HSBC the government is a tax gatherer. Both banks also feature in many investment and pension funds as underlying investment so many members of the public at large have an interest in their enterprises.

    I can't see a strong case for enforcing a break-up on Barclays or HSBC. It would not be in anyone's interests.

  • Comment number 26.

    The government couldn't break up HSBC or Barclays because if they even tried to attempt it, the two bank would just move outside of the UK's jurisdiction.

  • Comment number 27.

    15. At 11:38am on 07 Dec 2010, PacketRat wrote:
    "9. At 11:22am on 07 Dec 2010, yam yzf wrote:
    3. At 10:53am on 07 Dec 2010, torpare wrote:
    Britain is "powerless" to implement unilaterally anything it may recommend."
    -
    No, the UK can implement the rules, but the people if affects are free to relocate.
    ---
    Come off it, yam, surely even you can't misinterpret the article that much."

    No, that is clearly what RP's article states as well. In the same way that a viewer changes channel if he does not like what is happening, so a company has the choice to change country.

    Yes, RP is trying to provoke anger in the "it is wrong" brigade and thus stir up more anti-bank feelings, but the simple fact of the matter is that it is easy to relocate and that is the danger of the government pushing ahead unilaterally.

  • Comment number 28.

    Don't worry all...Gordon's worked it out.

    Gordon Brown book extract: Chronic recklessness powered by unchecked greed
    http://www.guardian.co.uk/politics/2010/dec/07/gordon-brown-economics

  • Comment number 29.

    12. At 11:34am on 07 Dec 2010, Decentjohn wrote:
    'Robert, yet another rant against the Banks encouraging ill-informed comments from contributors who have, it appears, formed their opinions only by reading the BBC's finacial news.'

    I haven't gone in for much in the way of bank bashing but having read a number of books on this subject in some detail I would suggest that many of these 'ill-informed' comments are fairly close to the mark.

    Do you have an opinion on Simon Johnson's '13 Bankers' or Yves Smith's 'Econned'? If you want to start with a solid rebuttal of those two we can probably use that as a good basis for further discusion on your assertion.

    I see little evidence for any position that suggests these organisations are a force for good in the world.





  • Comment number 30.

    Judging from the reaction of J-C Juncker et al, Eric Cantona knows how to deal with banks. If we are sure that we want to re-organise them, he would appear to be the man to be put in charge.

    More (or less) seriously, I'd rather that we just set a few rules for banks to make them more responsible with mortgages, keep sufficient capital and control their debt ratios, reduce stupid lending and investment, pay UKgov for their protection and so on.

    The performance of UKgov in re-organising private or public companies is rather like a magician making his beautiful assistant vanish: British Leyland, Norton-Villiers-Triumph, Brtish Shipbuilders, British Steel ... ... . The possibility of it should make any banker tremble in his boots. Perhaps the threat is enough.

  • Comment number 31.

    The answer could be simple.. Simply withdraw retail deposit insurance from banks that are exposed to non-retail activities, and require them to inform customers that their deposits are not state guaranteed. Then again the EU might also disallow even such action.

    Whether this is the right action is another question. At the end of most of the dodgy securitised credits sit - you guessed it - retail mortgages. There is no evidence that a pure retail bank is any more immune to dodgy lending practises than others.

  • Comment number 32.

    There are many ways the government could encourage the separation of retail and casino banking without having to getting agreement from the EU. One simple approach would be to adjust the a bank's maximum saving's guarantee for UK savers based on the amount of casino banking they undertake globally. If, for example, Barclays' savers were to receive no guarantee on their savings, while savers with a small retail building society were guaranteed up to £250,000 then its likely that customers would vote with their feet and move their accounts out of the mega-banks wouldn't they?

  • Comment number 33.

    re #24

    I didn't make it clear that I wasn't imagining the BoE acting on its own initiative, but as the agent for the UK government in monetary matters.

  • Comment number 34.

    32. At 12:58pm on 07 Dec 2010, DT_1975 wrote:
    There are many ways the government could encourage the separation of retail and casino banking without having to getting agreement from the EU. One simple approach would be to adjust the a bank's maximum saving's guarantee for UK savers based on the amount of casino banking they undertake globally.
    ==================
    From next year, the amount of bank guarantee is mandated by the EU at EUR 100,000 per person per bank

  • Comment number 35.

    Stanblogger / AnotherEngineer etc.

    I’d say that it’s not about big banks / small banks, retail or investment. This argument is a red herring.

    It is about the extent of securitisation of loans. Northern Rock was by far the biggest originator of securitised loans in the UK. Lehman had a massive exposure in the US.

    Securitisation is the means for creating toxic debts and passing along the food chain:

    http://www.bbc.co.uk/blogs/newsnight/paulmason/2010/11/euro_big_wednesday.html

  • Comment number 36.

    I would like to question whether these UK banks are actually UK banks anymore.

    The consolidated UK banks balance sheet available on the BOE website shows they they now have more assets/liabilities in foreign currencies than they do in sterling.
    The BOE may have dominion over sterling reserves and the price of sterling but they can do little about the foreign assets. That is why the Fed, yes the Fed bailed out UK banks to a greater extent than the BOE.

    How can the UK government therefore break them up?
    It is no longer in control.

  • Comment number 37.

    Britain "powerless" to break up banks.
    I think I shall never read a statement that tells me so clearly who runs this country.
    It's not elected Governments; that's a charade.
    It's the huge investment banks "too big to fail".
    The Banking Commission and the Treasury are "powerless" to break up the huge investment banks without agreement from the European Union.
    Does that make the Banking Commission's members "powerless" to lobby the EU, build the case, attempt to make change?
    I favour removal of investment and wholesale banking out of the likes of Barclays which is essentially what the governor of the Bank of England, Mervyn King, seems to favour of doing. When did Mervin get lose his voice?
    The preferred reform is no reform reform at all unless the wall between wholesale/investment banking and retail banking is so thick that it cannot be penetrated from either side. I call this wall Glass-Steagall.
    Best of all would be "a definitive, physical break-up of the mega-banks", and if you're telling me that this cannot be done, then I am telling you the economic crisis will never be over - NEVER - because huge investment banks "too big to fail" are just about always one step ahead of the law. After all, they pay mega bonuses to sweep up the brughtest financial minds (Conscience not important.).
    So, who in the UK leading the campaign, talking to the EU about reforming ALL European banks because what would work for England would work for Germany would work for France would work for Brussels. In fact, I cannot believe that Brussels has not thought split to be a good idea, but is simply wandering how to enforce it across the EU, foreseeing hesitancy in some EU countries.
    "The UK's ability to force major structural changes on its banks is very very limited," said a source close to government.
    And here I thought I shall never read a statement that tells me so clearly who runs this country.
    It's not elected Governments; that's a charade.
    It's the huge investment banks "too big to fail".
    The reason is that under EU law, any EU authorised bank has the right to set up a branch anywhere in the EU. So what?
    Which means, for example, that if Barclays did not wish to be broken up, it could move its head office to Luxembourg (for example)...Really? Who says that a big investment bank that moves to Luxembourg is allowed to follow Luxembourg's rules when operating in the UK?
    Alright already, we need a decison across the EU!
    I assume the chancellor is all over this one, persuading, explaining and attempting to get a comprehensive legal reform across the EU?
    As long as banks remain incestuous, banking will remain tenuous, bastardized by speculation, gambling, negative default swaps and all those games that gamblers like to play while our little mom & pop bank gets robbed whenever the big banks lose a bet. Who pays for that?
    It is possible that the EU could decide that some form of break-up of the biggest banks was not some insane British obsession but was worthy of consideration. For pity's sake, does the UK not have persons conversant with the financial problems that can lead the charge?

  • Comment number 38.

    'Which means, for example, that if Barclays did not wish to be broken up, it could move its head office to Luxembourg (for example) and then operate the whole of its retail banking and investment banking operations in the UK, as normal, in the form of a "branch" of the Luxembourg-based bank.'

    Although they might lose a few depositors who didn't like the idea of a deposit guarantee backed by the people of Luxembourg

  • Comment number 39.

    If a government is powerless then what is the point of it? Close it down then as a waste of resources. Either government adds value or it becomes an oppression.

    We need to split the retail banks from the casinos. This is not a wish: it is an imperative for the future of our economy.

    If the EU Commission steps in to prevent this then I, as a taxpayer conscripted into the prevailing arrangements, will expect the Commission to fulfil the guarantee rather than I and my fellow victims.

    No, I think this is all about someone coming to a conclusion they do not like but hoping that another party will prevent them from having to do what is necessary. The UK should commit to proper banking reform and expect the EU to fall into line behind us. If any bank wants to off-shore then it is up to them. However, they need to be expected to have to pay a levy equal to the subsidy the taxpayer has paid them since the autumn of 2008 before they leave.

    The banks need to be treated like hunts.

  • Comment number 40.

    I think like everybody else I'm not even remotely surprised. The banks have the clout and the money to employ the best legal advice that money can buy and if things look dodgy for them they start throwing the toys out of the pram in a fit of pique. Govts. consistently fail to understand how powerful banks are or go through the motions to try and rein them in an attempt to placate public opinion and hope things will die down after a while. It'll be interesting to see what effect Eric Cantona's take your money out of banks appeal will have in France. It probably won't make much difference as far as the banks are concerned as it'll probably be the people with small amounts who take their money out and the big account holders won't bother so French banks will be able to downplay it as a minor annoyance though if a lot of people did withdraw their cash it might just force them into a minor reality check but I doubt it will. Thing is if it does work then what's to stop other countries doing the same, that might just get the banks thinking. But then again banks thinking about public opinion is a bit of a misnomer.

  • Comment number 41.

    21. At 12:08pm on 07 Dec 2010, AnotherEngineer wrote:

    "I think this demand for separation of investment banking from commercial banking is overdone. Bear Stearns and Lehman Brothers were purely investment banks; HBOS managed to get into trouble largely though property loans as did the Irish banks.
    Also Goldman Sachs, JP Morgan and no doubt many others get on quite well with no retail business."

    --------------------------------

    You have just argued the case for separation above. Lehmans were allowed to collapse exactly because it did NOT have retail banking implications.

    And it was for this reason that the other big US investment banks successfully changed their status at the 11th hour in order to get access to Fed funds.

    US banks make shock status switch
    http://news.bbc.co.uk/1/hi/7628578.stm




  • Comment number 42.

    "to break up the giant universal banks such as Royal Bank of Scotland, HSBC and Barclays, without agreement from the European Union"

    Just remind me again...are we a soveriegn nation or not. Can we make our own laws and do what we need? If not then some dramatic action is needed now...

  • Comment number 43.

    If there is factual evidence that large universal banks were the problem that caused the financial crisis then making a recommendation that they should be split is sound. However there isn't any. Lehmans was not a universal bank. Northern Rock, HBoS, Bradford & Bingley, Alliance & Leicester, Countrywide and Washington Mutual - none of them were universal banks. There is no factual evidence either that size was the problem - indeed large universal banks enable the spreading of risk both across geographies and product lines.

    What we need the Independent Commission on Banking to do is to take a measured, fact-based analysis of the industry. It isn't helping the current hysteria people who should know better expressing early solutions that are not backed by the facts.

  • Comment number 44.

    It was a combination of the banks incompetence and greed that perpetrated the current financial crisis, so should we not expect them to make a gesture to help put things right?
    I would suggest that, rather than young students (our prosperity in the future) being forced into debt by excessive tuition fees, that their tertiary education should be paid for by a levy on all banking institutions in the UK.
    The banks would no doubt claim that this would make them uncompetitive, and thus drive banking business away from our shores, but the cost of tertiary education, while very great, is tiny when compared with the banks' combined profits.
    What say you to this, Mr Osborne?

  • Comment number 45.

  • Comment number 46.

    Big banks, Small banks……. Medium banks

    As Hawkeye_Pierce pointed out, the Northern Rock failed without being a big bank.

    The creation of money in private corporate hands doesn’t work, or rather doesn’t work for everyone else.

    It does work very well for those doing the creating bit of course.

  • Comment number 47.

    Pass the buck.......blame the EU.

    But surely the UK is not legally obliged to provide taxpayer bailouts to bankers?

    We now discover that "Too big" is legally entrenched in EU law, but not that failure must be prevented.

    UK politicians who cannot come up with a solution MUST move aside and let someone else who can!

  • Comment number 48.

    Oh well.....

    The bankers will be getting their billion pound bonuses this Christmas and we are told that it is apparently impossible to break up the banks.

    So it's business as usual then. Move along please, there is nothing to see here.

    WHAT ARE OUR SO-CALLED POLITICIANS DOING?

  • Comment number 49.

    It is not appropriate to break up the banks for what are purely political reasons. Separate retail and investment bank operations would not have prevented the crisis of 2008.

    Breaking up the banks into retail and investment/corporate operations would be technically difficult. It would also remove access to cheap money for Mortgage lenders and small businesses. Mortgage rates would have to go up in order to cover the cost of market rates. The retail banks would also have to become stand alone, so the most likely outcome is that bank charges of the order of £10 a month would have to be introduced on current accounts.

  • Comment number 50.

    I find it disappointing that this column hosted by the BBC regularly presents an unbalanced, incomplete point of view.

  • Comment number 51.

    'The reason is that under EU law, any EU authorised bank has the right to set up a branch anywhere in the EU. '

    Yes that may well be the case, but we won't have to bail them out if they go belly up will we? Also we have a completely different economy to the rest of Europe, the size of our economy in relation to our banking sector means we can't afford not to break up the banks into manageable chunks, some of which can be let go others of which we can stand behind and bail out. We can't afford to do this again, thats the point.

  • Comment number 52.

    #6 pietr8

    "Set up State Deposit Institutions (not banks - I'm sure someone clever enough can devise that)
    Then remove the £50k guarantee from bank depositors and give it to depositors of the new SDI's."

    I think something like this is what is required. Provide some real competition for the banks for customers savings. If there was a state-run current account providing a similar (or even slightly lower) level of interest as Gilts and providing the same facilties as other current accounts (cash-points access, direct debits etc) then I'd transfer my money over tomorrow. And in return the Government would get a cheap/reliable way of funding its debt - it works for the Japanese.

    In an ideal world we should force the banks out of the current account market. Make them turn into savings/loans institutions, paying higher interest rates to savers but acknowledging that the savings were not risk free. Providing the basic infrastructure of electronic money should be brought under state control, in the same way as printing paper money is state controlled.

  • Comment number 53.

    "Which means, for example, that if Barclays did not wish to be broken up, it could move its head office to Luxembourg (for example) and then operate the whole of its retail banking and investment banking operations in the UK, as normal, in the form of a "branch" of the Luxembourg-based bank."
    I find this very hard to believe. They could do that but surely the UK government has a right to say how they operate. Your two types of banks have to be separate. Exactly how would this contravene European law? I mean hosted banks surely have to obey sovereign law of their hosts.

  • Comment number 54.

    In looking at the submissions to the Independent Banking Commision I came across this;

    Positive Money Campaign

    They are suggesting a solution to the way in which banks are changed to support our new economy by doing away with Fractional Reserve Banking.

    I am no economist but they are and their ideas are written in laymans language and are pretty easy to read.

    Its clear something needs to change for ourselves and future generations and I think this is a once in a lifetime moment.

    What we need is a good strong recommendation from the Commission and then lets see whether we the people can ensure this is implemented regardless of any vested interest or European law.

  • Comment number 55.

    I have just finished reading a long rather dull, but extremely important document entitled:
    "The 4th Commission Meeting, 22 June 2010, Commission for Economic and Social Policy on LESSONS FROM THE FINANCIAL CRISIS FOR FINANCIAL
    SUPERVISION AND PUBLIC FINANCES."
    My memory is not what it used to be, but there were several "key" statements that stuck in my mind and of course, the entire document is avaialble to you.
    The Commission for Economic and Social Policy (ECOS), Brussels expresses is expressing concerns about the impact of the financial and economic crisis: EU-27 governments' injections into the banking system are estimated at EUR 234B (seems low to me), escluding all other support mechanisms. On the current course, public debt in the euro area is projected to reach 100% GDP by 2014!
    Credit continues
    - to tighten and
    - the availability of bank loans to SMEs deteriorate.
    Regional & local authorities have been impacted by the economic and financial crisis, the resultant collapse in tax revenue. Elected authority is in danger of losing DEMOCRATIC LEGITIMACY.
    The EU takes the view:
    The G20 AGREED that regulating the financial industry must move ahead in a coordinated manner, since many of the PERNICIOUS practices that led to the crisis are once again rearing their heads again, threatening further crisis.
    The EU fears that time is running out to secure proper financial industry regulation, which is a basic requirement for any SUSTAINABLE upturn in the real economy and for recovery.
    Some governments ARE DOWNPLAYING THE IMPORTANCE OF REFORMS. The crisis in the financial markets demonstrated the fundamental importance of financial market supervision. The new European structure for financial market supervision is expected to be established BY THE END OF 2010. This will be a significant step towards a harmonised financial supervision in the European single market.
    Further the EU basic concepts should also serve as an example at international level.
    The financial industry continues to have financial bodies that are deemed "TOO BIG TO FAIL" and/or "too interconnected to fail". This situation is untenable and needs to be changed. The EU calls therefore for new, custom-made regulation of the financial industry and the products it offers so that entire national economies do not come under threat because of dysfunctional financial markets.
    The EU in IN ESSENCE ADVOCATES THAT COMMERCIAL BANKING AND INVESTMENT BANKING BE SPLIT. The EU is not averse to giving investment banks greater freedoms, but proprietary trading and in house hedge funds should in any event be banned in order to nip in the bud any conflict of interests in dealings with clients; hedge funds must be regulated in such a way that any insolvency cannot spark a crisis in the global financial system.
    BANNED: Investment banks should be BANNED FROM ENGAGING IN PRACTICES SUCH AS NAKED SHORT SELLING and stealth acquisition. Any entity running excessive risks and speculating in the hope of exorbitant profits must also BE ALLOWED TO GO BANKRUPT.
    Credit default swap business (CDS) – a global industry worth hundreds of TRILLIONS – is, for the most part, little more than a "farce".
    If the day ever comes when the US government can no longer service its bonds, CDS protection will not be worth the paper it is written on.
    Moreover, credit default swaps on anything and everything did more than any other financial product to fuel the global financial crisis in the first place. CDS have been, and are again being, used by both lenders and borrowers to create substantial credit facilities that have insufficient asset cover; sometimes no asset cover, and Governments appear unaware. The CDS business must to a large extent be curbed through regulation and made subject to mandatory exchange-trading.
    It is not enough just to set up clearing houses as this merely exacerbates concentration and thus increases the risk expressed in the term "too big to fail" or "too interconnected to fail". The rule of thumb must BE: "insurance – yes, but speculation – no".
    An EU public rating agency is badly needed if any custom-made financial industry
    regulation is to be put in place. Safe investment products are vital for people saving for their children's education or building up provision for old age; regardless of this however, the EU still expects massive improvements in investor and consumer protection in the EU by requiring financial consultants to disclose their interests and making it easier for swindled clients to claim for damages.
    Custom-made financial industry regulation also includes the worldwide – or at least EU-wide – THE INTRODUCTION OF A FINANCIAL MARKET TRANSACTION TAX.
    A tax of this kind is the ideal market tool to curtail economically utenable operations, boost public revenue when the financial industry "loses its head", and of course, provide an audit trail to dig out nefgarious financial instruments.
    A financial transaction tax would, in part at least, pass on the weight of dealing with the crisis to those who caused it. For these reasons, a financial transaction tax is preferable to a general levy on banks.
    The EU also calls for a REFORM OF THE REMUNERATION SYSTEMS. Practices such as management liability insurance paid for by the company and golden parachutes awarded on termination of employment contracts EVEN IN THE EVENT OF FAILED BUSINESS must stop. Such practices encourage people to overestimate their own capabilities and foster irresponsible business policy.
    Well, this is what I saw as important in this paper. Be mindful that I did not make notes word for word; so, you may want to check the actual docuemnt.
    So:
    Is the problem with the EU and its recommendartions, or is the problem with individual countries that do not want to give up all the donations they get from the huge investment banks "too big" to fail". Are Governments in the pockets of the huge investment banks? And if so, Governments were not elected to help only those "too big to fail"; in fact, they weren't elected to help the investment banaks at all.

  • Comment number 56.

    Robert, Robert, Robert.... You are a celver chap aren't you. I see that some people see that your reporting is not unbaised, well, to be fair, it's not, but that's not your fault, that's the BBC and an issue for separate discussion.

    What you have described today is nothing short of a clear and conscise outline of the main issues surrounding the economic crisis - that no government, no country, no nation, no one at all, has any power over the banks. They do what they want and because society is so dependent on them and they have provided such great tax income over the years, they are allowed to.

    All the rhetoric from politicians across the world, from the media and from disgruntled consumers means nonthing. A mistake was made on a global scale, and the only question that needed to be anwered was "Do you want a deep recession for a few years with a few million jobs lost or a deep depression for decades with hundreds of millions of jobs lost?"

    That is the bottom line. The choice, if there ever was a choice, was whether to save the banks and endure the hardship that results or to let them fall and endure the even worse hardship that would flow for a much longer period. I am not happy by any means with the banks or the way things have turned out, but I would prefer this than the inevitable global disaster that would have ensued had we let the banks fail.

    Of course the government has no power over the banks - no government does. The EU as an institution will barely survive this crisis, and the peoples of the EU/USA will continue to have no real voice or power despite the pedistal that our so called system of democracy has been put on.

    Anyone who didn't already know this must have been niaive, but knowing the truth doesn't mean that anything can be done about it. The banks are the air that the economy needs to breathe - without them we would suffocate and the world would descend into a crises that would lead to an invetable war that no one wants.

    Breaking up the banks was never an option, but was a good soundbite for politicians to feed to the voters. To be honest, I would have done the same if it was me - because I would have said or done anything to get Brown out and made the choice to take short term hardship over longterm severe hardship. You can't blame politicians, and you can't blame the media. You can only blame the banks, but as long as people will still do business with them, they are in the true position of strength and power and there is nothing anyone can do about it.

  • Comment number 57.

    Robert

    A very interesting article. Given that, as a nation, we cannot afford a repetition of the bailout of 2008, if the major banks ever went belly-up again because of their "casino" activities, since it would send our debts even further into the stratosphere, we have two courses of action open to us:-

    (1) persuade our EU partners to break up the megabanks, with domestic regulation for "limited banks" (ie ones which took deposits and savings below 100K euros and then lent them out as loans and mortgages to individuals and financing facilities to small business) and European regulation for the super-profitable but super-risky activities by "investment" banks; or

    (2) negotiate our leaving the EU; after that we could impose any conditions we wanted, including the requirement that the "limited" banks must be headquartered in the UK (so if HSBC and/or Barclays decided to relocate they would have to sell their UK retail operations, for whatever they were offered by whomsoever the UK Government would allow to buy such banks ).

    This looks like a no-brainer to me. As the UK is a sizeable export market for many EU countries, we should be able to negotiate a free-trade agreement with the EU, while regaining our rights as a sovereign state to order our affairs as we wish.

    While we're on the subject of leaving useless multi-State bodies, given the latest commitment from our American "allies" that UK troops be ready to defend Tallinn and Riga from those nasty cheating Russkies, perhaps we should dump our membership of NATO at the same time....

  • Comment number 58.

    A few days ago the Fundamentally Supine Authority said no charges were to be brought against anyone at RBS (buried under a blizzard of World Cup recriminations) and now this. Ho hum.

    We all understand who's pulling the strings don't we?

  • Comment number 59.

    49 Lorentz

    The break up of the banks is not for political reasons but because the management of the banks cannot be trusted not to break the economy all over again. The taxpayer is subsidising the banks with their guarantee for economic, not political reasons.

    If it is political as you suggest then can the taxpayer have all their money back? I mean now, in full, immediately, by this evening. Of course not, the banks can't do it. Then I would like some interest on my savings as well.....

    The banks are indebted to the taxpayer but do not like it. Well for my part there is only one reward for incompetence and that it is a good firing. This is what we do in the real economy and it is what should have happened to the banks after they broke the economy.

    We are two years on and the banks still just don't get it. In the UK we are complaining about the banks; in Ireland they hate the banks. Hatred can be arranged.

    With regard to retail banking it should not be beyond the wit of man, or woman for that matter, to create a retail model which will be valued by the consumer and the small business. It used to happen so it is not beyond human capability. However, it seems to me that it may be beyond the capability of those who think money grows on trees, a type we seem to have far too many of in this great country of ours judging by all the weeping and wailing that is going on.

    Change it has to come: adjust!

  • Comment number 60.

    Has writings On The Wall been banned?

  • Comment number 61.

    The empire spreads and we are powerless to stop the wave of German economic power taking over all of europe. But there again they are the only country in Europe apart from the Dutch, who know how to run a successful economy. Do we trust Ireland, Greece, Spain, Italy, France, etc etc with the purse strings?

  • Comment number 62.

    With all of this talk about whether to split up the banks or not, does anyone know what is happening with the Credit Rating Agencies? You know, the private companies who contributed to the financial meltdown and also were a factor in the recent problems with Greece and Ireland?

    Maybe if the Credit Rating Agencies were to say the if a bank was running unnecessary risks due to the link between the bank's investment and retail arms, then that would encourage the banks to setup the required fire walls/seperation being looked for to ensure their credit ratings.

  • Comment number 63.

    If we have to wait for the EU to make a major decision then the banks will continue to amuse themselves for they know it will never happen.

    Their appears to be some kind of Christmas truce between EU and the markets at the moment or perhaps it is just a waiting game to see what the ECB are going to do about the huge problems in the EU's banks.

    Banks can only be broken up successfully when they have gone bust and the best bits are picked up by others. Such as Lehman investment picked up by Barclays.

    Perhaps it's time to leave the big banks to their fate and the markets.

    Stop governments from underwriting them and allow new retail banks to be set up which service customers and businesses in the good old fashioned way.

    Some real competition is urgently required before the whole lot both countries and banks go down the tubes permanently.

    No other solution has been forthcoming and is unlikely to do so until they kill of the EU for good and allow real aggressive and urgent decision making to begin from the ashes instead of the confusion and thumbsucking we have now.

  • Comment number 64.

    #55
    Commission for Economic and Social Policy
    ====================
    Who are these people? could you post a link please

  • Comment number 65.

    As the BBC moderator only likes grovelling obsequious I love new labour comments, let me just say it is a scandal that the BBC pay is almost 3% lower than an executive bankers-though the pointless bonuses are mercifully the same. What we need is more european laws ruling Britain, a 100 years of New Labour and the licence fee to rise to £50k a year.

  • Comment number 66.

    It was the fatal decision taken by governments to dispense with healthy banking practises that precipitated the economic crash. In fact this was the only possible conclusion sooner or later. So it is nonsense for obsessed people like Peston to keep trying to pin all the blame onto banks. The crisis of the Euro has also nothing to do with banks but with flawed, greedy and risky GOVERNMENT policy.

  • Comment number 67.

    So, the Bankers and traders have subsidised their bonuses (their losses of a previous year), with the Shareholders Funds (your Pension Fund) and the Tax payers bail out, and still no one has the guts to bring them to heel ?

    I'm not sure who should be more ashamed, the Bankers, or the Gov'ts that have continued to let them help themselves.

    The Bankers should get no bonuses until the Tax payers AND the Shareholders have had their capital restored.

    Investment Banking should be split from retail banking.

    Short term funding for long term lending should be abolished.

    Banks should not securitise loans, let alone buy packages of loans from dodgy (mostly American) firms. Firms whose profit is commission not successful recovery of the loan.

  • Comment number 68.

    Everyone has to pay tax! Tax the Banks and their staff. We cannot be held to ransom by these thieves and robbers of the poor!

    We need David Cameron's National Maximum Income. Nobody in the country should earn more than 20 times the National Minimum Wage and the tax system should be used to enforce this limit just as David Cameron suggested.

    All this mealy mouthed hand wringing - 'oh we can't do anything' is absolute nonsense. And the people should not stand for it!

  • Comment number 69.

    62. At 14:34pm on 07 Dec 2010, RevoxBlack wrote:
    "does anyone know what is happening with the Credit Rating Agencies? "

    Check out rule 17g5 from the SEC and the ECB are currently framing something similar.

  • Comment number 70.

    > The preferred reform might consist of putting an impermeable legal wall between
    > wholesale/investment banking and retail banking,

    No. This is not what we prefer. We want them broken up properly. That is the preferred option. It's too late for them to start dickering now. Break them up. Now.

    If we need to change the law, so be it. If we need to dump Europe, so be it. The message is clear - break them. up.

  • Comment number 71.

    > To put it another way, if the eurozone were to become the centre of
    > another great banking crisis...

    No. We must break them up this time, to avoid the next time. The public wants no backsliding by greedy, stubborn, stupid bankers. The time has come to decide - we break them up, or they will break us up again.

  • Comment number 72.

    Erm 'British-gauge railway track' is already in use throughout most of the EU...due to the sterling work of Robert Stephenson et al exporting railway technology some 170 years ago

  • Comment number 73.

    I would have thought that the Commission should focus its attention on the enforced 'shot gun' marriages brought on by the original financial collapse, e.g. Lloyds banking group in which the tax payer has a large stake. And wasn't it waived through by the Competition regulator in view of the crisis? This can and should be broken up and I'm sure the European regulation authorities would approve. Breaking up pre-crisis big banks which survived like HSBC and Barclays was, and is, a tough call.
    As I see it the only way forward with this is via the Monopolies Commision. If some groups like HBOS have too large a slice of a particular market like car insurance, then action can and should be taken.
    Regards, etc.

  • Comment number 74.

    66 sandywinder

    I agree that the regulators failed to regulate but this still does not excuse the banks from acting both irresponsibly and utterly stupidly.

    This merely serves to illustrate the point that both Big Government and Big Business have failed us fundamentally. Neither can be trusted. Therefore it is time to break up that which is too big.

    This can either be done through a sensible compromise or through punitive measures. I don't mind which but as a humane person I feel the bankers might prefer the compromise route. They just have to learn that resistance to reform is utterly futile! We just can't go on with this broken model.

  • Comment number 75.

    The banks have restructured governments rather than the governments restructuring the banks. Until the bonus system is disallowed and bankers put on salary the incentives to do wrong will continue. Because the banks own the governments it is unlikely that anything productive will happen with banking. The banks and their investors control what happens in government and no one represents the interest of the people and depositors, as we have already seen.

  • Comment number 76.

    14 noninterestingtimes:

    Good post!!

    Just the sort of action that would begin to restore sovereignty to the customer. Doing nothing, other than fiddling on the fringes, does not seem a viable option given the near certainty of another financial shambles under the current regime.

    Otherwise, get out of the EU and let them continue with their reckless behavior. After all, they can't even abide by their own fiscal rules.

  • Comment number 77.

    #68
    Yes John, 20 is a good number.
    I believe that the taxate should be 20% for Income Tax, Capital Gains, VAT, Corporation Tax etc. then tax avoidance becomes much less lucrative and revenues will rise.
    The rate to gradually fall in future years!

  • Comment number 78.

    Call me paranoid, but on the day of the great Cantona's Bank Protest we get this.


    http://www.bbc.co.uk/news/uk-northern-ireland-11937654


    and it did take an incredibly long time to process my debit card transaction in the shops today. (the longest its ever taken actually). And yet the right wing press had already hailed the protest at having been a flop by 9.45 this morning.

    Maybe its time to visit the ATM just in case.

  • Comment number 79.

    In the case of those banks that were bailed out using our money, was not the mechanism for doing this the purchase of shares? And if you own enough shares in a company, can you not exert control over that company?

    Hence, even if EU rules say that HM Government, acting as a government, cannot order banks within its jurisdiction to split up... HM Government as a major shareholder can, at least, act like one by taking control in the boardroom and so have the bank itself 'decide' - as an act of the Board of Directors working at the behest of major shareholders - to split up.

  • Comment number 80.

    @66. sandy winder wrote:

    "It was the fatal decision taken by governments to dispense with healthy banking practises that precipitated the economic crash. In fact this was the only possible conclusion sooner or later. So it is nonsense for obsessed people like Peston to keep trying to pin all the blame onto banks. The crisis of the Euro has also nothing to do with banks but with flawed, greedy and risky GOVERNMENT policy"

    So financial deregulation was solely governments' idea, against the strongly-expressed opposition of the financial sector, who haven't profited from it beyond the dreams of avarice?

    What planet are you living on?

  • Comment number 81.

    http://www.bbc.co.uk/news/uk-northern-ireland-11937654

    perhaps they haven't paid the atm usage bill , or have the people perhaps taken cantona's advice and crashed the system ?

  • Comment number 82.

    > right now the commission - which consists of former regulators and erstwhile
    > bankers - seems to me to be leaning towards a definitive, physical break-up of
    > the mega-banks.

    Good. Any political party who crosses the commission will suffer a terrible fate at the next election, which is (looking at watch) about six months off.

  • Comment number 83.

    "60. At 14:33pm on 07 Dec 2010, JavaMan wrote:
    Has writings On The Wall been banned?"

    Don't get your hopes up - WOTW's just on holiday. But perhaps he's stuck in an airport.......

  • Comment number 84.

    What's happening at present seems to be a battle between 'common sense' and 'greed'. Clearly, 'greed' has the upper hand for the time being. But that can't last. Any organic system that contains in-built flaws is bound to fail eventually. It's like struggling on with an MOT failure - you shout at it, kick it, and pretend that the dilapidated lump is of use. But it isn't really, and you know you would be better off without it.

    Much like the EU really!

  • Comment number 85.

    # 80 torpare wrote

    So financial deregulation was solely governments' idea, against the strongly-expressed opposition of the financial sector, who haven't profited from it beyond the dreams of avarice? What planet are you living on?

    I am living on a planet called reality that does not ignore the fact that it was government policy in the UK and America to encourage banks, and on some occasions (as with the US Community Reinvestment Act) to FORCE banks, to lend money to people on low incomes in order to win votes and keep the housing boom going as long as possible.

    I do not deny that bankers were greedy but it is highly hypocritical to ignore the highly significant part that irresponsible governments played in all this. It is easy to make a single scapegoat out of bankers. But it is not fair and it certainly is not cricket. I prefer to play with a straight bat. How about you?

    What planet are you living on?

  • Comment number 86.

    3. At 10:53am on 07 Dec 2010, torpare wrote:
    ......
    So, we have surrendered control over our own economy. Opting-out of the Euro, with the apparent corollary that thereby we remained masters in our own house monetarily, as well as fiscally, has not in fact enabled us to decide for ourselves what we require of our banking and monetary system. Instead (even though our government set up the Banking Commission to examine and make recommendations about this very question) Britain is "powerless" to implement unilaterally anything it may recommend.

    = = = = = = = = = = =

    58. At 14:27pm on 07 Dec 2010, getupstandup wrote:
    A few days ago the Fundamentally Supine Authority said no charges were to be brought against anyone at RBS (buried under a blizzard of World Cup recriminations) and now this. Ho hum.

    We all understand who's pulling the strings don't we?
    = = = = = = = = = = = = = = = = = = = = = = = = = = =


    It isn't just a problem for the UK. No individual State can control the operations of multinationals who will obviously take advantage of their global situation.

    It's those free markets again. They allow the free movement of capital and operations so that any multinational can site its headquarters and other operations wherever its business benefits. You've seen it yesterday with Kraft, moving Cadburys headquarters to Switzerland to lower corporation tax payable to the British government.
    It will happen with banks too if London becomes too oppressive. One of our larger banks has already hinted it will move away, should this happen.

    Governments are just starting to wake up but it's too late. Global businesses run the world. Until someone stamps on the free markets worldwide, that's how it'll stay.

  • Comment number 87.

    83 pietr8

    Perhaps hes run out of wall. Or perhaps his banking employer caught him posting.

  • Comment number 88.

    How refreshing an article about banking. I think we should have more of these. And who let the dogs out. Havent they got it yet. There is not going to be this curious idea of 'reform'. And if there is then other countries will say slide over here and bring the GDP with you. Do these people walk down the street punching themselves in the face saying Got ya that time. Gotya. And, who gives a monkeys about what Lrd Turner, Hector Smirk or M King thinks. Has anybody actually met somebody who cares what they think.

  • Comment number 89.

    • 7. At 11:16am on 07 Dec 2010, thomas_paine wrote:
    "giant universal banks are part of the continental financial tradition: ingrained in European business culture, part of the structure of the state."

    Which means that they have been controlling us for a long time.
    Time to stop this and gain real freedom for the people.
    A first step would be to fully nationalise the rescued banks and turn them into clearing banks only.
    Take the power to create credit away from the private banking sector.
    All credit provision not 100% backed is to be created by the people through The Bank of England (already nationalised) and "sold" to private banks like cash (look up seigniorage).
    Then taxes could go down. We would then be able to have progressive policies like a social wage/credit from the proceeds of operating the money system for the benefit of all.
    A citizen's wage could support from student to pensioner without the need for borrowing.
    That should be the aim.
    This means the adoption of a re-distributive enlightenment instead of the current medieval trickle-down dogma.
    ……………
    Couldn’t agree more. The current monetary system is no longer fit for purpose. All I see is the preparation of excuses for maintaining the status quo. We need vision, and wholesale change. The idea of monetary reform is 100s of years old, and yet the banks and the political establishment continue to resist the need for obvious change, in order to keep their banking chums sweet. Its pathetic. The European banking system is going to collapse anyway, so the only hope if this putting off wont last too much longer anyway.

  • Comment number 90.

    54. At 14:16pm on 07 Dec 2010, Citizen_Smith19 wrote:
    In looking at the submissions to the Independent Banking Commision I came across this;

    Positive Money Campaign

    They are suggesting a solution to the way in which banks are changed to support our new economy by doing away with Fractional Reserve Banking.

    I am no economist but they are and their ideas are written in laymans language and are pretty easy to read.

    Its clear something needs to change for ourselves and future generations and I think this is a once in a lifetime moment.

    What we need is a good strong recommendation from the Commission and then lets see whether we the people can ensure this is implemented regardless of any vested interest or European law.

    ..........
    The Positive Money submission is a good effort and simply represents the concept of "monetary reform" where banks are no longer able to create our money supply as debt. There is nothing new about this, its a solution thats been around for 100s of years, even Abraham Lincon tried to implement it, but the banks have always resisted it. Once the banking system collapses, we should take the opportunity to introduce monetary reform at the first opportunity.

  • Comment number 91.

    86. At 15:56pm on 07 Dec 2010, doctor bob
    'Governments are just starting to wake up but it's too late.'

    You think so? I would say that many have been deeply complicit in the process. A necessary part of the Neoliberal project.

  • Comment number 92.

    It again shows the incompetence of our so called leaders. This is really very simple:

    + Tax bonuses of any bank refusing to divest itself of a branch structure at double the prevailing rate- branches have limited value given their poor service and internet banking.

    + Offer new banking licenses for auction to raise more competetion

    + Make it a requirement for all banks to deliver a fixed rate mortage product as in the US/Europe based on long term bond bcked securities.

    In this way there should be some hope of broader competition and less overhead in the banking system.

  • Comment number 93.

    92. At 16:48pm on 07 Dec 2010, DibbySpot wrote:
    It again shows the incompetence of our so called leaders.
    ------------------------------------------------------

    I beg to differ. It shows that they are doing exactly what you would expect the establishment to do.

  • Comment number 94.

    74. At 15:09pm on 07 Dec 2010, stanilic wrote:
    "This merely serves to illustrate the point that both Big Government and Big Business have failed us fundamentally. Neither can be trusted. Therefore it is time to break up that which is too big."

    But then should that not also hold for car manufacturers, retailers etc?

  • Comment number 95.

    Printing money (not defined) = Inflation (not defined) = Disaaaaaster darling.
    Solution: Unemployment, underemployment and lots of sick people who are apparently neither.

    Convincing intelligent people of this crock is the great neo-liberal success

  • Comment number 96.

    Visibility and accountability would do the trick.

    Results published very quickly for each bank with absolute clarity. Don't think we'd need EU approval for that.

    Personally I'd look to invest in a low risk bank paying low bonuses but just managing my money well.

    Would that be possible? Could they produce numbers that meant something to us. If school league tables are possible surely bank league tables could be?

    Shockingly we could then decide for ourselves.

  • Comment number 97.

    96. At 17:12pm on 07 Dec 2010, Ilkeston_Tim wrote:
    Could they produce numbers that meant something to us. If school league tables are possible surely bank league tables could be?
    ---------------------------------------------------
    Did anyone looking at the bank stress tests earlier this year believe the published outcome? Will we believe the new tests that are to be undertaken from February?

    http://www.bbc.co.uk/news/business-11934180

    Could we therefore trust bank league tables?

  • Comment number 98.

    94

    You obviously did not read my comment about large retailers on Robert's earlier blog. I used the word `oligopoly'. I also remarked that it is the same staff going around among all the businesses.

    I would add that when the economies of scale collide with the law of diminishing returns it is time for reflection.

  • Comment number 99.

    #77. AnotherEngineer wrote:

    "Yes John, 20 is a good number. I believe that the tax rate should be 20% for Income Tax, Capital Gains, VAT, Corporation Tax etc. then tax avoidance becomes much less lucrative and revenues will rise.The rate to gradually fall in future years!"

    We do not live on the same planet!

    1. Trickledown economics is and always was a complete failure and rubbish.
    2. 'Flat Taxes' are the same failed idea re-packaged by the rich to rob the poor.

    I have absolutely no sympathy with, and see no merit in, any of your 'ideas' - they are a rehashing of the failures of the past.

  • Comment number 100.

    @85. sandy winder:

    I think you've allowed yourself to be taken-in by the banking apologists' propaganda.

    The banks never needed to be forced to lower their lending standards - they couldn't wait. Securitisation was introduced in advance of financial deregulation but it couldn't really take off on a grand scale so long as the "old" regulatory regime remained in place. So the political strategy promoted by the US banking lobby became to get that regulatory regime removed.

    Only then was the decoupling of lending from loan responsibility (which securitisation created) able to be exploited politically to pressure banks to be (perhaps, we'll never know for sure) even more irresponsible in their lending than they were already being anyway. Securitisation had made such irresponsibility possible by enabling the risk to be passed onwards down the chain to unsuspecting buyers of AAA-rated MBSs. The politicians didn't invent MBSs, nor suborn the rating agencies to misrepresent their creditworthiness - the banks did, to increase their profits and the benkers' bonus earnings. The politicians just jumped on the bandwagon.

    "Complicit" yes, but you were arguing that it was all their fault whereas in fact they just took advantage of an opportunity to pick up some votes. The real culprits were clearly those who created the opportunity in the first place - for personal financial gain. You can call that "reality" if you like but I think you're kidding yourself.

 

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