Mervyn King: Break Up the Big Banks

Well, it seems everyone but the politicians and Ben Bernanke are shouting to break up the big banks so we stop creating entities that are "too big to fail."

Thankfully the only people who matter are our legislators, and since they have been cleanly swept into the back pocket of our financial oligarchs, none of these warnings will gain traction. It truly is amazing how powerful a small group of a few thousand Americans (legislators plus a splinter of financial elite) can be; able to withstand calls from the majority. Our de facto feudal system seems not much different from the 1400s... at least they let us own the land nowadays.

The latest to make the fruitless call is the central banker of the UK, Mervyn King.

Via Bloomberg:

• Bank of England Governor Mervyn King stepped up his call for governments to tackle the dangers posed by banks that are “too important to fail,” saying new capital rules won’t shield taxpayers from funding any future bailouts.
• "The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history,” King said in a speech in Edinburgh late Tuesday.
• He indicated that one solution could be to split up banks and separate riskier activities from more stable businesses such as taking deposits.
• “Capital requirements reduce, but not eliminate, the need for taxpayers to provide catastrophe insurance,” King said. He added that it is, “hard to see why” proposals such as those of former Federal Reserve Chairman Paul Volcker to separate proprietary trading from retail banking are “impractical.”
• King said the U.K. banking system is “highly concentrated” and greater competition is needed to reduce the dependency of households and businesses on just four institutions. The government owns 70% of Royal Bank of Scotland Group Plc (RBS) and 43% of Lloyds Banking Group Plc (LYG). Barclays Plc (BCS) and HSBC Holdings Plc (HBC.A) are the country’s other biggest banks.

Looks like both countries now have their Big 4 oligarchs -- RBS, Lloyds, Barclays, HSBC, meet Wells (WFC), Bank of America (BAC), Citi (C), and JPMorgan (JPM).

Somehow Canada does not run into these problems with an almost identical concentration of 5 major institutions. Then again, Canadian bankers did not threaten for two decades to move away to another country if the regulators stifle their financial innovation or pay. I believe it is cultural more than anything. The UK and US are peas in a pod. We don't see this extreme anywhere else on the globe. There must be a reason.

Comments

[MarvinMBA:]

Bank consolidation is the way to go....we have far too many branch banks that are really doing very little business and competing for the little business that there is...in addition they are not doing their job of lending to the public anyway so who needs them. With deposits at the one percent area they are helping no one but funding the government debt helping the USA with a major ponzi scheme.

Oct 21 02:37 PM

[a fat panda:]

"The UK and US are peas in a pod. We don't see this extreme anywhere else on the globe. There must be a reason."

I largely agree with you up to the last point. Banks all over Europe have been hit with this financial crisis. And I think the reason that you didn't see the ripple go further was the US taxpayer back-stopped the US banks and the GSEs.

Oct 21 03:48 PM

[bassmaster17:]

Peabody is doing great...nice we both got it cheap!!! It may selloff, but I have longer term plans for that position. Just a question about Dick Bove. I know he's CNBC's show pony, but didn't he get the whole credit crisis wrong and told people to buy Citi at $20? Just checking to see if there's any legitimacy to his call on Wells given his track record.

Oct 21 03:51 PM

[TraderMark:]

I am not saying the securtization problems were only in the US, UK

the compensation and "don't you dare regulate us or we'll move operations to London, or NYC" shouts are in these 2 countries.

You don't hear that yelling in French, German, Canadian, Australian banks.


On Oct 21 03:48 PM a fat panda wrote:

> "The UK and US are peas in a pod. We don't see this extreme anywhere
> else on the globe. There must be a reason."
>
> I largely agree with you up to the last point. Banks all over Europe
> have been hit with this financial crisis. And I think the reason
> that you didn't see the ripple go further was the US taxpayer back-stopped
> the US banks and the GSEs.

Oct 21 04:33 PM

[TraderMark:]

I like Peabody but how did a coal stock get mentioned in this thread? Did I miss something? lol.


On Oct 21 03:51 PM bassmaster17 wrote:

> Peabody is doing great...nice we both got it cheap!!! It may selloff,
> but I have longer term plans for that position. Just a question
> about Dick Bove. I know he's CNBC's show pony, but didn't he get
> the whole credit crisis wrong and told people to buy Citi at $20?
> Just checking to see if there's any legitimacy to his call on Wells
> given his track record.

Oct 21 04:34 PM

[J.D. Kaad:]

Good article Mark, I especially appreciate the comparison to today's government to the feudal system. Although one small point since eminent domain is still practiced in the United States, land ownership is an illusion we just get the privilege of being taxed for the land.

Oct 21 05:45 PM

[Gerald Hoch...:]

There might be a common link. The King James version was published in England when there was almost no seperation of church and state. Today you have dictators from Africa advocating religion, making it the largest craze, rivaling the tulips of Holland. If you take a close look at christianity, it pushes "scapegoats" as being the ultimate answer to problems. When the scapegoats are considered viable, it pushes "responsibility" to the back burner. Religion, being in the "backroom", can make the "STATE" look cool.
The freedom of speech has let someone like Howard Stearn make it so "cool" to be a loser.....why not be a cool loser. Who is kidding who?

G.H. Salem IN

Oct 21 06:51 PM

[tripleblack:]

King is a new hero to me. I really like the way he talks. I am of course also in favor of breaking up the 2bigs, and the longer this drumbeat is ignored in Washington, the more one has to wonder why...

Oct 21 07:35 PM