Evening Standard City commentator Anthony Hilton writes today in favour of separating the banks. Three highlights:
"Lehman's bankruptcy was a disaster because of the contagion it spread through investment banking. Had it simply paralysed other investment banks such as Merrill Lynch and Morgan Stanley, governments might have been able to stand aside."
"If RBS and Citi had not had investment-banking activities then they would certainly have been tossed around in the stormy seas, and they may have faced a liquidity squeeze but they would not have been made insolvent."
"Separation would lead to more appropriate management. Conventional banks would be heavily regulated and not expected to shoot the lights out with fast growth and booming profits. They would be like a utility — judged on their reliability, stability, and service to customers. Investment banks would also temper their activity because they would need more capital if the subsidy from retail disappeared, and because if they took too much risk they would be left to fail."
The article summarises the case well and is certainly worth reading. It echoes CSM's campaign to separate the banks. We cannot just go on as before. The alternative plans out there (eg just relying on stronger regulation) do not deal with the institutional problems.