Plan to split UK banks ‘goes too far’ says former Fed chairman
A FORMER chairman of the Federal Reserve has warned that regulation in the UK may have gone too far in its efforts to separate high-street banks from their high-risk investment arms.
Paul Volcker claimed the UK’s proposals to ringfence retail banks from their speculative trading divisions go even further than calls to re-introduce American laws established in the Great Depression, which he said would have been “probably not desirable”.
Speaking before giving a talk in Scotland this week, the 85-year-old, who acted as chairman of the Economic Recovery Advisory Board under President Barack Obama and also served under United States presidents Jimmy Carter and Ronald Reagan, rejected a return to the 1933 Glass-Steagall Act.
In the US, Volcker called for rules banning deposit-taking institutions from engaging in risky activities such as proprietary trading, private equity and hedge fund investments, which came to be known as the Volcker rule.
A return to Glass-Steagall, which was repealed in 1999, would have been a step too far in the US, Volcker said.
But he believes the proposal by the Independent Commission on Banking, chaired by Sir John Vickers, was even more “radical” than the rule which bears his name. The ICB stopped short of recommending the full break-up of UK banks, but gave them until 2019 to separate retail and “casino” banking.
Volcker said: “Returning to Glass-Steagall would be a more radical move and I don’t think it is either necessary and probably not desirable.
“The British proposal, by the so-called Vickers Commission, proposes something very much like going back to Glass-Steagall. In a way it is even more radical, in the sense you would keep the investment bank in the same holding company but it would restrict the operations of the bank itself even more than Glass-Steagall did.”
But he dismissed concerns that regulations imposed on banks in the UK would disadvantage them.
He said: “All the banks in New York say we have got to compete with all the banks in London. And all the banks in London say we have got to compete with the banks in New York.
“There is a need for some consistency, but the approach doesn’t have to be the same in every country.”
Volcker will this week address the Institute of Chartered Accountants of Scotland conference in Gleneagles, where he will be presenting a talk entitled “What governments need to do to get the western world working”.
He was dismissive of last week’s pledge by current Fed chairman Ben Bernanke to pump billions of dollars into the US economy until its faltering jobs market improves.
Bernanke unveiled the country’s third round of quantitative easing, worth $40 billion (£25bn) a month.
Volcker said he hoped the stimulus would work, but added: “They are at a point where they have no magic solutions. They are doing what they feel they should do, but there is no reason to believe that it will have the desired effect.
“I can tell you the world economy is very sluggish at the moment. The US is not going very well. But we look good compared to the rest of the world. There are more difficult things in Europe and Japan, and even China has slowed down.
“It is a world that has too much unemployment and too little growth.”
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Thursday 20 June 2013
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