The Great Debate UK
– Hugo Dixon is a Reuters Breakingviews columnist. The opinions expressed are his own –
Breaking up the banks is no silver bullet. Politicians on both sides of the Atlantic — including two of the party leaders fighting the UK election — want to separate so-called casino investment banks from utility lenders. But such simple rules would create arbitrage opportunities and rigidities without curbing excess risk-taking.
In the last of the UK’s election debates, the Liberal Democrat and Conservative leaders vied with one another to see who could be tougher on banks. As a soundbite, the notion that nasty, risky investment banking should be split from nice, safe retail banking may well be a winner. Gordon Brown, the Labour leader who has a more nuanced position, was left looking like a defender of big banks.
The politics are similar in the United States, where the Obama administration has proposed the so-called Volcker rule, which would prevent banks from engaging in proprietary trading. Some version of this rule may yet emerge in the financial regulation bill now going through Congress.
When the Berlin Wall fell 20 years ago, the momentous event marked the triumph of the market economy over planned economic structures, says British economist John Kay.
He explains his views on why the capitalist system reigns supreme.
British economist and author John Kay theorizes that Britain is mired in its worst recession on record in part because government support has not been evenly distributed across sectors.
British economist and author John Kay argues in “Narrow Banking: the reform of banking legislation” that the financial services industry should be restructured to ensure that regulation serves the interests of the public.
“A competitive marketplace is one in which well run businesses earn profits through domestic and international competition, and badly run businesses go to the wall,” he says.