Should high street banks be barred from 'casino' banking?

Mark Littlewood writes for the Daily Express

The ringfencing or firewalling proposed by Sir John Vickers' Independent Commission on Banking could become a £7billion a year red herring. That’s a very high cost for a policy with very little merit.

What is needed is a robust procedure to ensure that if and when a bank fails, it can be wound up in orderly fashion without the taxpayer being asked to foot the bill. The challenge is not to make banking safer; it’s to ensure the wider economy isn’t threatened when a bank hits the buffers.

There is a misguided belief that banking can be split neatly into two separate categories. Retail banking – the day-to-day side of things that most of us are familiar with such as current accounts, mortgages and the like – and dangerous, high-risk investment banking.  But in reality all banking involves some sort of risk. 

Northern Rock was a retail bank, which found its jaw-dropping offer of mortgages – worth more than 100 per cent of the value of the accompanying property – were wholly unsustainable. 

Of course Sir John and his fellow banking commissioners are no fools. They know that banking can’t be divided into zero-risk activities and casino-type betting. Even they acknowledge that certain types of assets currently held by UK banks should be considered “flexible”. 

Read the rest of the article on the Daily Express website.

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