An interesting opinion from Governor of the Bank of England, Mervyn King, is that the Banks ‘too big to fail’ should be prevented from getting that big in the first place. According to the Times Online King stresses this is not a personal ploy for power nor is it instigating a battle with the treasury but in the country’s and taxpayers’ best interests.
This comes at a time when the Chancellor Alistair Darling will be announcing proposals for regulation of the financial sector for the next ten years. The proposals will at large be based on the findings of Lord Turner’s Report on the Financial Services Authority.
King’s remarks not only question the general size of banks but whether the banks are mixing high-street retail banking with high risk investment banking, which had caused so much trouble in the last couple of years. The issue of size and relative failure is a contentious issue, many analysts have argued that the bigger banks were more likely to fail and fail in a more expensive way to the taxpayer. However, others highlight that even the relative smaller banks have an impact for instance Dunfermline, Northern Rock and Bradford & Bingley, were not large yet still needed to be saved. Even the biggest banks did not fail simply because of their size, for instance RBS’s disastrous acquisition of ABN Amro, leading to them needing rescue from the taxpayer.
The Swiss government is even considering measures to physically curb their big banks: UBS and Credit Suisse. However, one analyst argues this may lead to banks moving their headquarters abroad, the last thing the country wanting a revenue drain abroad.
At the basis of Darling’s future proposals for regulation is the idea of responsible lending. Something we here at 24/7 Moneybox take very seriously indeed. When you apply for our cash loans we want you to be sure you have thought ahead and can afford the repayment. Check out our lending guide if you need some assistance.
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Tags: Bank of England, FSA, recession
