The Bank of England governor Mervyn King has delivered a speech in Edinburgh arguing that stricter and more interventionist regulations won’t be enough to control the risks Britain’s large banks pose for the country’s economy. He wants them broken up and for the retail banks to be separated from investment banks with the former avoiding the risky stuff and the latter being allowed to be more adventurous. Shouldn’t his words of warning also apply to his own bank? Isn’t the Bank of England “too big to fail” and hasn’t it also taken on some highly risky bets recently?
What is also odd about his speech is his claim that investment banking was to blame for the financial crash. It was but only up to a point. Sub-prime mortgage lending by retail banks in the US was what brought us all low. Yes, the scale of the lending was boosted by the the securitisation market, but seperating institutions will not prevent that happening again. Sorry to say but capitalism involves risk.