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Anorak | The stupidity of new banking regulations

The stupidity of new banking regulations

by | 4th, October 2012

IT’S said of Generals that they’re always ready to fight the last war. That they would have been just perfect at fighting WWI in 1939, that in 1914 they knew just how the Crimean War should have been done. But at least they did actually work out how to deal with the last one: this is more than can be said for the people trying to reform banking right now .

European banks will be forced to split out risky business such as proprietary trading under proposals set out in a report on how to make the region’s lenders safer.

The report produced by a European Union advisory group, chaired by Bank of Finland Governor Erkki Liikanen, recommends a series of changes to the way banks are structured and funded to make it easier for them to be wound down if they get into trouble.

Under the proposals, proprietary trading, which involves banks attempting to profit from trading using their own shareholders’ funds, will in future have to be placed within a separate legal vehicle to ensure that it poses no risk to a lender’s deposit-taking business.

Of the banks that went bust in London not a single one of them went bust as a result of the mixture of investment and commercial banking. In fact, none of the investment banks did go bust. The banks that did fell over because of plain old lending too much cash to the wrong people.

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Posted: 4th, October 2012 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink