Bank Regulation

I was just talking to my partner over dinner last night about renewing the Glass-Steagall Act, you know, the way people do, when up pops Nigel Lawson in today's FT suggesting the same thing. Perhaps he was hiding under the table - he certainly doesn't look as if he eats much.

It's quite interesting actually. It's about how we regulate banks in the future - more, or better. Glass Steagall was brought in in the 1930s after the last major recession. Quite simply it said that commercial banks shouldn't be allowed to own investment banks. Bill Clinton repealed it in the 1990s.

When last year the whole pack of cards looked as if it were tumbling, the government thought it had to rescue the banks, or the economy would grind to a halt. But in fact all it needed to do was rescue the commercial banks, the ones which we hold our accounts with and which do the banking for small and medium sized businesses, make credit card payments and so on.

What I propose is that in the future the government guarantees 100% of customer deposits and tells banks accounting for, say, 80% of UK commercial banking business, that they will bail them out but in return they must be tightly regulated, as to their leverage (how much they lend and borrow in relation to their capital) their bad debts and so on. Unlike with the Glass Steagall Act they would be welcome to indulge in investment banking but this business would be kept separate and allwed to go bust.

Simpler and better than the needlessly complicated Gordon Brown scheme of 1997. In fact rather similar to what we had before the clueless rogue came on the scene.