In an interview on BBC TV, James Edsberg discusses comments by Mervyn King, Governor of the Bank of England, on the need for structural reform of the banking sector.
“We’re 12 months on from the banking crisis and the fundamental structural problems of the sector have not yet been addressed,” said James Edsberg.
“To understand what needs to be done and why, you need to look back at how the banking sector has evolved. Over the last 15 years, it has got more concentrated with fewer, larger banks. This, combined with the increasing interdependence of banks and the complex ways in which banks found to spread risk within the sector, meant that when one bank failed, the consequences hit the rest of the sector.”
“The US Federal Reserve thought it could make an example of Lehman by letting it fail – but the Fed underestimated the market reaction – which was a complete freeze in market lending. One bank’s failure, almost tipped us into a global depression.”
“Measures to address regulation and bonus culture on their own won’t address the structure issue. Instead, banks may need to prepare for more radical intervention by policy-makers – including a possible split in two dimensions. First, dividing retail from investment banking activities. And second, encouraging competition authorities to work together globally to ensure that within different regions and markets, no bank grows too large to the detriment of customers and clients - as well as the banking system as a whole.”
“In any other sector, supernormal profits would attract the attention of anti-trust authorities – it’s time for those who police markets to apply their analysis to parts of the banking sector.”
“We’re 12 months on from the banking crisis and the fundamental structural problems of the sector have not yet been addressed,” said James Edsberg.
“To understand what needs to be done and why, you need to look back at how the banking sector has evolved. Over the last 15 years, it has got more concentrated with fewer, larger banks. This, combined with the increasing interdependence of banks and the complex ways in which banks found to spread risk within the sector, meant that when one bank failed, the consequences hit the rest of the sector.”
“The US Federal Reserve thought it could make an example of Lehman by letting it fail – but the Fed underestimated the market reaction – which was a complete freeze in market lending. One bank’s failure, almost tipped us into a global depression.”
“Measures to address regulation and bonus culture on their own won’t address the structure issue. Instead, banks may need to prepare for more radical intervention by policy-makers – including a possible split in two dimensions. First, dividing retail from investment banking activities. And second, encouraging competition authorities to work together globally to ensure that within different regions and markets, no bank grows too large to the detriment of customers and clients - as well as the banking system as a whole.”
“In any other sector, supernormal profits would attract the attention of anti-trust authorities – it’s time for those who police markets to apply their analysis to parts of the banking sector.”
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