Monday, April 11, 2011
Vickers sets a new course for banking
Posted by David Smith at 01:00 PM
Category: Thoughts and responses

An executive summary of the Independent Banking Commission's interim report is available here. Much of what the Commission says makes sense and should make the banks safer. Putting riskier activities into separate subsidiaries and requiring more capital is preferable to break-up. I still have doubts about orderly resolution - winding down troubled institutions in a way that avoids systemic damage and recourse to taxpayers.

When a bank or one of its divisions gets into trouble, it is unlikely because of an isolated event only affecting that bank or division. Systemic problems are likely to be the cause. The Vickers' reforms should help prevent such problems but when panics start, all bets are off.