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MPs back LibDems and Tories on fundamental banking reform

A cross party committee of MPs has criticised two central planks of the Government's approach to making safe the banking system, in the wake of a banking crisis that in Britain at least is the worst since 1914.

The MPs are criticising the Treasury for failing to consider the option of breaking up the banks, into so called "narrow" banks that would look after our savings and be protected in an explicit way by the state and more speculative banks that would not always need to be bailed out by taxpayers as and when they ran into dificulties.

To be clear, the Committee isn't saying that the banks must be broken up but simply that it was wrong of the Chancellor, Alistair Darling, to rule out that option (especially in the wake of President Obama's announcement that he was contemplating a ban on speculative or proprietary trading by commercial banks).

In that sense, the Committee's report will be seen as embarrassing for Labour, and supportive of the Tories and fake cheapest place to buy cartier love bracelet the LibDems, both of which are more sympathetic to the idea of breaking up the banks.

Also, a second dimension of the report will be seen as critical of Labour, and good news for the Tories and LibDems. It says that the UK would benefit from international agreement on thorough banking reforms, but adds that "the prevarication on international agreement must not be used as an excuse to delay, or at worst, prevent reform".

"The UK has a very large banking system relative to GDP compared to other countries and its reform is anyway in our own self interest, even if it is not coordinated with reforms in other countries".

Again, this view that the UK should contemplate unilateral action to make safe the banking system even at the risk of driving offshore some City businesses which might seek to relocate to centres where regulation is less intrusive or costly is closer to the views of the LibDems and Tories than to Labour.

The Tories have recently opened a divide with Labour by saying that they would impose a new tax on banks even if an international consensus cannot be built.

That said, the public position of the Shadow Chancellor, George Osborne, on an Obama style break up of the banks is that he would only do this if other countries adopt the same approach.

The strongest proponent among senior financial figures of breaking up the banks even if other countries don't is the Governor of copy cartier cheap bracelet the Bank of England, Mervyn King.

In a way, therefore, George Osborne is giving implicit back to a unilateral dismantling of banks by the UK, in that he would want to make Mervyn King the capo di tutti capi of financial regulation and supervision.

Comment number 1. At 02:06 29th Mar 2010, Leigh Caldwell wrote: Narrow banking would not have prevented the financial crisis. Northern Rock and Bradford and Bingley were narrow banks and the parts that brought down RBS and HBOS were the "narrow" bits, not the investment banks!

The problem is not even the size of the banks though that does make a contribution. The real problem is something more subtle but, when you see it, much more obvious:Complain about this comment (Comment number 1)

Comment number 2. At 08:19 29th Mar 2010, darksurfer wrote: All these discussions about narrow banks, casino banks, investment banks fake cheapest cartier love bracelet are a pile of rubbish pelted by ignorant people.

Here are the two main issues:

1)A bank with poor risk management is a cartier white gold bracelet casino bank, nothing to do with investment, commercial or retail.

2)A society living on credit with huge amount of debt is a casino society

Deal with it!

Complain about this comment (Comment number 2)

Comment number 3. At 08:23 29th Mar 2010, aadwork wrote: As usual I find the UK political knockabout depressing. There is a major issue left unanswered in this discussion. All commentators appear to agree that bailing out of the ailing banks was the correct government decision. However, most believe that letting Lehman Brothers fold initiated the crash. So in the future do we really have any idea of what size of bank should be supported by governments and what financial structure would be required to do this. Surely, a concensus on this issue would limit the political options. As you have pointed out on several occasions, governments would either have to limit the size and structure of banks to be left to fail, or they would have to limit their operations to minimise the chances of failure.

It's the numbers that matter.

Complain about this comment (Comment number 3)

Comment number 4. At 08:32 29th Mar 2010, openyoureyes wrote: Narrow banking worked until the break up of the sensible deal in the 90's then a huge build up of risk occured. Coincidence? Don't tell me it didn't contribute. Break them up or we won't survive the next one.
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