Banks must be split, says leading think tank

Major banks should be forced to split their retail and investment arms to end the era of extortionate fees and big bonuses, reports The Telegraph.

The Institute for Public Policy Research (IPPR) said the Government must take dramatic action to reform the banking industry, saying its current policy was “too timid”.

In a report titled ‘Don’t bank on it: the Financialisation of the UK economy” the IPPR argues today that, despite a wave of new regulation, customers still pay too much in fees to banks and that pay levels within the organisations remain too high.

“Where very little has been done is on the issue of rent extraction. The culture of the City, its governance and compensation practices, all need to change,” said Tony Dolphin, chief economist at IPPR.
Mr Dolphin said that even the recent proposals of the Commission on Banking Standards to “electrify” the ring-fence between retail and investment banking businesses would not solve the problems with banks.

The reports calls for retail deposit-taking businesses to be placed into an entirely separate organisation from riskier investment banking activities.

“By ensuring that no bank is ‘too big to fail’ or ‘too big to bail (out)’, it would make the system safer, make it less likely that the taxpayer might have to pump funds into banks in the future to ensure the banking system continues to operate, and reduce the effective subsidy given by the taxpayer to the banking system,” said the IPPR.

The British Bankers’ Association responded to the IPPR’s report by saying it shared the “commitment” of regulators to ensure the “taxpayer is never again called on to support failing banks”.

The government has said it will introduce new primary legislation before the end of the current parliament on bank reform. However, the banking commission has criticised this approach, saying the government has not given enough detailed information on its reforms to allow proper scrutiny.

Last month, George Osborne warned the commission not to “unpick” the consensus he said existed on bank reform.

The Treasury has yet to respond fully to the commissions proposals, including its call to legislate for a back up power that would allow the authorities to force the split of a bank.