Should high risk and low risk banking operations be separated?
As the concern with regards to taxpayer funding of the UK banking industry continues to grow there is a feeling that UK taxpayers are now underwriting the more risky end of the sector. While the UK government has effectively demanded that UK banks reduce their risk exposure there are still many investment divisions which are built around risk and return ratios. So is it fair for UK taxpayers to fund these particular operations?
While on the surface it looks as though UK taxpayers were predominantly used to underwrite traditional banking, including mortgages and loans etc, it seems as though inadvertently support has also been given to the more risky end of the market. However, the UK banking industry is well known for its flexibility and has been at the forefront of new investment vehicles and investment tools. There are now calls for the more "traditional" banking operations to be ring fenced from the more risky investment divisions, but would this really work?
It seems highly unlikely that we will see a parting of the ways between various banking operations because ultimately in the good and the bad times each one will support the other. To take away one element produces a risk that the underlying business may not be as solid or have the potential for growth in the future. After all, there is no reward without risk!
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