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


King Suggests Splitting Up Largest Banks to Stem Risk
Jennifer Ryan
Bloomberg, Oct. 21 2009

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