The case for breaking up Barclays
Regular readers of this blog will be unsurprised to hear that I disagree with the argument of my colleague, James Moore, that breaking up Barclays Bank would be a bad idea.
James points out that the EU’s stress tests of the continent’s banks gives Barclays a Tier 1 capital ratio of 13.7 per cent even in its adverse scenario model.
But when Lehman Brothers collapsed in autumn 2008 it had estimated Tier 1 capital of 11 per cent (see page 5 of this Standard and Poor inquest), which was considered more than adequate by the regulatory authorities.
Obviously, the more capital banks hold as a buffer against losses the better. But one of the lessons of the financial crisis is that using these metrics alone to gauge the safety of an institution is disastrously misleading.
James says breaking up Barclays would not benefit anyone much. My response is: how about the British taxpayer, who would no longer be underwriting the casino bets of Barclays Capital?Tagged in: barclays, Barclays Capital
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