Is it sensible to split up the large banks?
The new banking commission, set up by the coalition government, has this week prompted speculation that some of the larger banking operations in the UK could be split up between retail and investment banking. There has been speculation for some time that the government and the regulators were looking to split various banking groups in the UK but does this make sense?
While there is no doubt that the investment banking operations in the UK operate on a significantly larger risk/reward ratio than traditional retail banking historically they have each propped each other up in difficult times. However, if the regulators were to take one particular leg away then potentially in the troubled times there would be nothing to support a stand-alone operation.
The value and strength of the UK banking industry is the overall ability of banking groups in the UK to become involved in each and every area of the financial sector. If all of a sudden you take away this particular strength then potentially we could see the cost of individual stand-alone operations increase which would then increase the cost to consumers and businesses. There is no simple way to separate these two distinct operational units and maintain the same cost base for the future.
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