Volcker to tell UK MPs to split the banks
President Obama’s call to make banks shed risky trading – effectively a new Glass-Steagall Act – is not off the UK agenda, despite being dismissed by government ministers. The architect of the plan, former Federal Reserve chairman Paul Volcker, is coming to the House of Commons to outline his plan.
The Treasury select committee is holding its own inquiry on banks that are “too big to fail”. And this powerful committee of backbench MPs has summonsed the 82-year-old grandee of central bankers to explain his plan to force banks to stop taking risks with their own money through proprietary trading, private equity of hedging.
The report will be completed before the general election – probably well before – and with committee chairman John McFall due to hand over the chair after 13 years, the MPs are unlikely to pull their punches.
UK government ministers have stated their opposition to such curbs – not least because President Obama’s announcement knocked billions off the stock market values of British banks, especially the state-owned Royal Bank of Scotland. Curbing RBS would reduce its value, making it harder to sell at a price that recovers the taxpayers’ investment.
Shadow chancellor George Osborne claims the Tories support the American plan but London’s Conservative mayor, Boris Johnson, is against - so it is not obvious how the Tory MPs on the select committee sill vote.
Forcing banks to divide into “safe” and “risky” institutions would affect not only the government’s tax revenues and privatisation plans, it would affect the businesses that use them. Corporate clients benefit from integrated banks that can offer a wide spread of services, including currency or interest rate hedging.
Biggest loser from a revived Glass-Steagall would be Barclays, which thought it had convinced the Conservatives against it, but the British bank to provide a model that satisfies all could be HSBC. That bank operates across the world but ensures that each local operation is self-standing, including self-financing. In theory, any unit could fail without dragging down the group: in practice, each could curb its activity to suit local politicians without the whole of HSBC being affected.
Volcker was born before the Wall Street crash of 1929 and chaired the Fed when Carter and Reagan were presidents – before Glass-Steagall was repealed. He has a solution that appeals to Obama but which does not have an appeal in the UK. Yet British MPs, like the American president, may find him useful for bashing the banks.
