Wednesday, October 21, 2009

Brit Banks hit the Glass-Steagall ceiling?

In what may become a king-hit on the TBTF Brit banks, the Governor of the Bank of England is talking tough. Of course, talkin' ain't walkin'.

Bank regulation plan 'a delusion'
The Bank of England governor has hinted that plans to reform UK banking through regulation alone may not be enough.

Mervyn King said it was a "delusion" that tightening regulation could stop banks' most risky activities from failing and leading to huge losses.

In his starkest warning yet, he said banks may have to separate their day-to-day business from more speculative practices if they are to get state aid.

"The sheer scale of support to the banking sector is breathtaking.

"Never has so much money been owed by so few to so many. And, one might add, so far with little real reform."

But he added: "It is hard to see how the existence of institutions that are 'too important to fail' is consistent with their being in the private sector.

"Encouraging banks to take risks that result in large dividend and remuneration payouts when things go well, and losses for taxpayers when they don't, distorts the allocation of resources and management of risk."

He said that those banks which continued to get public money to prop them up and aid their recovery should not be encouraged to try and earn profits to get out of government support "by resuming the very activities that got them into trouble in the first place".

Larry Summers ain't walkin' yet, either, with his big talkin'.

Summers Says Financial System That Causes One Crisis Every Three Years Demands Reforms
“There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system,” he said. “This has direct relevance on the changing nature of the social compact between the financial sector and the broader economy.”

"The time has come for fundamental change in the financial sector of our economy," he says, "both in how financial institutions conduct their business and how they are regulated."

Guambat doesn't know King's record for follow-through, but is dubious that Summers will have met and defeated his Gramm-Leach-Bliley Waterloo.

From Wikipedia:
Summers hailed the Gramm-Leach-Bliley Act in 1999, which lifted more than six decades of restrictions against banks offering commercial banking, insurance, and investment services (by repealing key provisions in the 1933 Glass-Steagall Act): "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," Summers said. "This historic legislation will better enable American companies to compete in the new economy."

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