Why breaking up Barclays Bank doesn’t look so clever
So now we know. Barclays is Britain’s strongest bank, and by quite some way. Even under a stressed scenario considered by Europe’s banking watchdogs it would have a tier one capital ratio of 13.7 per cent. You wouldn’t want to describe any bank as rock solid given the carnage of the past few years, but if these figures are to be believed (and they were put out by the regulators) Barclays is the closest thing. Barclays, of course, is what they call in the trade a “universal bank”. In other words, it’s got lots of investment banking operations. In fact, it is investment banking that has been the main driver for its profits in recent years.
Currently, however, the vogue is for splitting these operations from retail banks to avoid contagion from one impacting on the other if things go wrong. If the UK Government goes down that route (Vince Cable is clearly mad keen and Bank of England Governor Mervyn King appears to be of a similar mind) that would mean you’d effectively need to carve up Britain’s strongest bank.
Now I’m no fan of the banks generally, but this doesn’t appear to make much sense. Some sort of ban on proprietary trading, where a bank uses its own money to take bets? Good idea. Restrictions on other activities, such as, say, private equity. I’m fine with that too. Doing something to better protect money held on deposit by retail customers (like you and me)? Go for it.
But smashing up the UK’s strongest bank because we don’t like bankers much and are they’re all greedy bonus grubbing… well, you know.
In this case, that doesn’t appear to benefit anyone much, apart from the US tax payer (where Barclays’ investment banking operations would inevitably be listed) and the boss of Barclays Capital Bob Diamond (who would presumably run the thing).Tagged in: banks, barclays, economy, stress tests
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