British inquiry to see if banks 'too big to fail'

24th September 2010, Comments 0 comments

The British government on Friday announced an inquiry into possible reforms of the banking sector, including the thorny question of whether their retail and investment operations should be split.

The Independent Commission on Banking (IBC) will also consider breaking up Britain's largest high street banks to increase competition.

Just six banks control almost 90 percent of all deposits in Britain, a far higher figure than in Germany or the United States.

The fear that British banks have become "too big to fail" was fuelled by the financial crisis when the government had to bail out Royal Bank of Scotland, Northern Rock and the Lloyds banking group.

The debate over how to prevent the need for future bailouts has been amplified by warnings from banks including HSBC, Barclays and Standard Chartered that they could be forced to quit Britain if the commission recommends they should be broken up.

Some experts argue that dividing the risk-taking investment arms of banks and their everyday retail operations would make them more stable.

But critics argue that such a split could damage Britain's competitiveness in the banking sector.

IBC chairman John Vickers said: "Experience shows that the risks from not asking hard questions about financial stability and competition are far greater than from doing so.

"Questions about the structure of banking need to be debated in an open, rational way, and we would like to invite anyone with an interest to provide us with views and evidence."

The inquiry's final report is due to be published in September 2011.

© 2010 AFP

0 Comments To This Article