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BofE's Mervyn King : No Bank should be too big to fail

By Anonymous

A couple of quotes from The Times: Mervyn King presses his case to limit size of banks

Mervyn King said he wanted a restriction on the size of banks, and that investment banks might have to be split from retail banks. ... he said banks should not be allowed to grow so large that they were deemed too big to fail.
...
?It is not sensible to allow large banks to combine high street retail banking with risky investment banking or funding strategies, and then provide an implicit state guarantee against failure,? Mr King said.

The State could limit providing a guarantee for depositors to high street banks that offered straight-forward services. Alternatively, riskier banks should have to hold much more capital. Finally, banks may have to provide their own plan for how they could be wound down in the event of failure. ?Making a will should be as much a part of good housekeeping for banks as it is for the rest of us,? Mr King said.

... he was not sure how the Bank [BofE] would use its enhanced authority because its new tools were limited to issuing warnings that were likely to be ignored. ?The Bank finds itself in a position rather like that of a church whose congregation attends weddings and burials but ignores the sermons in between,? he said.

That last sentence shows King's frustration - after the crisis is over, it will be business as usual, unless the regulatory reforms have teeth.

Even then it is just a matter of time - and lobbying. The banks are notorious for having no institutional memory.

Full post as published by Calculated Risk on June 17, 2009 (boomark / email).