The Independent Commission on Banking (ICB) was set up to investigate how to prevent another big financial crisis like 2008 in which governments have to bailout failing banks. RBS and Lloyds were both rightly regarded as "too big to fail" and were partly bought up by the taxpayer.
The ICB proposes that the retail arm of banks being ringfenced from their other operations; and that banks hold significantly more capital to be able to absorb its own losses. Ring-fencing will provide greater security for retail depositors - they know that their money cannot be used to bail out reckless investment banking decisions.
However, forcing UK lenders to hold more equity than international competitors will harm British competitiveness. New regulations need to be made multi-laterally if they are not to be counter-productive.
The real problem still remains: banks are too important to fail. Until this issue is dealt with, the chances of another big financial crisis is high.
The ICB proposes that the retail arm of banks being ringfenced from their other operations; and that banks hold significantly more capital to be able to absorb its own losses. Ring-fencing will provide greater security for retail depositors - they know that their money cannot be used to bail out reckless investment banking decisions.
However, forcing UK lenders to hold more equity than international competitors will harm British competitiveness. New regulations need to be made multi-laterally if they are not to be counter-productive.
The real problem still remains: banks are too important to fail. Until this issue is dealt with, the chances of another big financial crisis is high.
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