Thursday, June 17, 2010

Making banks manageable

The Future of Banking Commission report co-authored by Vince Cable, a Liberal Democrat Politician in the UK and currently its Business Secretary in the UK , has placed a set of 39 recommendations to the Government . One thing that caught my eye was that fact that it has endorsed the idea that large banks may have to be broken up.

Following the crisis, several economists have suggested that banks should not be allowed to become too big to fail - requiring compulsory bail out with tax payers money , in case of failure caused by reckless business decisions. I for one agree with this view for two reasons

a. I believe that notwithstanding the best in class systems and processes put in place, it is humanly impossible to manage beyond a particular size.

b. I don't think tax payers need to bail out shareholders. That is not logical.

However, this is one suggestion that has been conveniently ignored.

Now, the same thing coming from somebody , who is now high in the Government and that too from UK makes it interesting. Knowing the power of the finance lobby though I know it is going to be a very difficult task - and banks have experts in circumventing rules - so I wont be surprised if they find a way around this one too - should it become a rule. I wish Vince Cable the best of convincing ability !!

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