{"id":17404,"date":"2011-12-18T20:07:38","date_gmt":"2011-12-19T00:07:38","guid":{"rendered":"http:\/\/www.prefblog.com\/?p=17404"},"modified":"2011-12-18T20:07:38","modified_gmt":"2011-12-19T00:07:38","slug":"uk-to-force-split-of-banks-vanilla-and-freestyle","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=17404","title":{"rendered":"UK to Force Split of Banks: Vanilla and Freestyle"},"content":{"rendered":"

Jennifer Ryan of Bloomberg reports that U.K.: Banks to Split Consumer, Investment Arms<\/a>:<\/p>\n

The U.K. will force banks to separate their investment and consumer businesses as part of its acceptance of the findings of the John Vickers-led Independent Commission on Banking, business secretary Vince Cable said.<\/p>\n

\u201cTomorrow, the government is going to launch this initiative on the banks, accepting in full the Vickers commission,\u201d he told BBC television today. \u201cWe\u2019re going to proceed with the separation of the banks, the casinos and the business lending parts of the banks.\u201d<\/p>\n

Former Bank of England Chief Economist Vickers recommended in a Sept. 12 report that banks build fire breaks between their consumer and investment banks and boost the amount of loss- absorbing equity and debt they hold to between 17 percent and 20 percent. Since 2007, the government has had to spend, pledge and loan 850 billion pounds ($1.3 trillion) to rescue British banksChancellor of the Exchequer George Osborne will say in Parliament tomorrow that the government will enact the reforms stemming from the report and the Treasury will publish its response. The changes are to be implemented by 2019.<\/p>\n

The units inside the fire breaks will include all checking accounts, mortgages, credit cards and lending to small- and medium-sized companies, the report said in September. As much as a third of U.K. bank assets, or about 2.3 trillion pounds, will be included, the document said. Trading and investment banking activities will be excluded from the ring-fence. Standard & Poor\u2019s said Sept. 14 the elements of a bank outside the ring fence face a credit-ratings cut as they won\u2019t be able to count on government support.<\/p><\/blockquote>\n

This is echoed by the Guardian<\/a> and the BBC<\/a>, but journalists rarely do anything more than copy each other’s press releases anyway, so whether one can use the word “confirmed” is a matter of luck.<\/p>\n

If it’s true – and if the attempt is successfull – I’m very pleased. As I said on March 24, 2008<\/a>:<\/p>\n

As I have stated so many times that Assiduous Readers are fed up to the back teeth with the incessant drone \u2013 we want a shadow banking system! We want to ensure that there are layers of regulation, with the banks at the inner core and a shock-absorber comprised of brokerages that will serve as a buffer between this core and a wild-and-wooly investment market. This will, from time to time, require (or, at least, encourage) the Fed to step in and take action, but the alternative is worse.<\/p><\/blockquote>\n

The Independent Commission on Banking<\/a> has a refreshingly focussed website. In his opening remarks<\/a>, Sir John Vickers made the points:<\/p>\n

Structural separation would bring three main benefits:<\/p>\n