In a move that could inspire large-scale bank reform in the U.S., the
British government is breaking up some of its largest banks. Royal Bank
of Scotland, Lloyds Banking Group and Northern Rock will be forced to
sell off parts of their operation. Britain's actions follow pressure by
European regulators looking to prevent 'too big to fail' banks from
threatening the global economic system. Could massive American banks such as
Citigroup and Bank of America be next? Financial writers discuss:
- A Catalyst for Bank Reform in America, writes Edward Harrison at Credit Writedowns: "One should not understate the importance of this decision. This is a game-changing move by the UK government. One year ago, it was the U.K.’s decision to recapitalise its banks which changed the economic policy landscape. U.S. policy makers were forced to switch TARP policy from buying up dodgy assets at inflated prices to injecting capital. Yet again, the British are leading the way in reform. I reckon this move will put pressure on the US where the Obama Administration has been completely unwilling to break up the large banks, which are now even more dominant than before the crisis."
- Time to Look in the Mirror, writes Dave Anderson at Newshoggers: "The British have been ahead of the curve in recognizing the obvious that having banks that are too big too fail and clean up neatly is just an invitation for hostage taking and institution capture situations. Breaking up some of the systemically critical companies into banks that are traditional banks and not the hydra headed monsters of self-enriching destruction is a good start. Robert Patterson notes that this may be a gentle nudge towards smarter and more effective action from the Obama Administration on our banks, hedge funds and investment banks along with the associated looters that are deemed too large to fail. Let's hope sanity or at least self-preservation continues to break out."
- Time to Break Up Citigroup, writes Simon Johnson at The New Republic: "The U.S. position on protecting everything about our largest banks is starting to look increasingly isolated and out of step with best practice in other industrialized countries. Time to start planning for the breakup of Citigroup."
- Bernanke, Geithner and Congress Will Stymie Reform, writes Lita Epstein at Daily Finance: "Right now, Volcker, who chairs Obama's recently formed Economic Recovery Advisory Board, is fighting tougher headwinds... because Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner both support allowing the big banks to stay big, as long as there is tougher regulatory supervision. Yet the likelihood that the tough regulatory supervision they envision will pass Congress is slim. Lobbyists for financial institutions and other interested parties will likely induce Congress to water down what Bernanke and Geithner design."
- No Silver Bullet Adair Turner, chairman of the U.K.’s financial services authority, recently gave a nuanced answer to The Wall Street Journal when asked about too-big-to-fail institutions: "A crucial debate. The key to it is to understand that it is very unlikely that there is one silver bullet answer. There are a series of reinforcing policies which will help us address this. This includes a higher level of capital for systemically important banks, or higher quality capital. We have to reduce the probability of failure of very large banks. Beyond some measure of systemic importance, which may be primarily size but could include some non-size metrics as well, we will require a higher level of capital or a higher quality of capital."