The Banks: Splitting Retail from Investment Banking?
For the last month or two major banks in Britain have been talking about this split. Barclays remains sceptical, arguing that splitting would affect the way each part helps to generate profits for the other. So a small business, with only a retail account with the bank, might benefit from an investment account were it to be making super profits.
On the other hand Deutsche Bank in London wants to be “in the forefront of cultural change”. The Bank admits to have been involved in the Libor scandal. So they may well be thinking of a split.
More generally the Bank of England has been arguing that most of the Chief executives in British Banks are recent appointments, and so not tainted with the Libor scandal.
Why are the banks having this debate? Firstly, the concern that investment banking had been dangerously out of control, and was threating the security of monies in individual’s bank accounts. Remember the panic about banks running out of cash from cash dispensers. Were individual’s life savings at risk? Secondly, a Government report has recommended this split, and the Labour Party now supports the split.
Will the split actually happen? The coalition government is itself split on whether to allow, or make, the banks split their retail and investment arms. There may be Chinese whispers across the fence! The labour party is waiting to win an election. There has been a Vickers Report, which has recommended ring fencing investment banking from retail. There is a House of Commons Committee looking at banks behaviour. Lloyd’s Bank has promised to ring fence by 2019.
The debate continues. But there is little evidence of anything else happening.
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