Friday, September 24, 2010
Has the Banking Commission bitten off more than it can chew?
Posted by David Smith at 12:00 PM
Category: Thoughts and responses

The government's Independent Banking Commission is headed by a competition expert, Sir John Vickers, so it was natural that it looked at competition within the banking sector as well as structure. So the Commission's Issues Paper, here, looks at both.

These are big issues. The subject of competition within the UK banking sector has occupied great minds over many decades, yet we emerge from the crisis with a more concentrated banking system than before, largely thanks to the Lloyds-HBOS merger.

On the issues of structure, on which there is not a huge amount of expertise on the Commission, all options are open. They include a UK version of Glass-Steagall, a ban on proprietary trading by banks (which may be a bit of a red herring in the UK context), and "narrow" or "limited purpose" banking, as set out by Laurence Kotlikoff in Jimmy Stewart is Dead. There was, of course, a run on Jimmy Stewart's bank in It's a Wonderful Life.

The Commission has called for evidence by mid November and will report in a year's time. In the meantime, the best thing the government could do for it is stop Vince Cable prejudging its conclusions. A gag on the business secretary would be helpful.