The recommendations of the Future of Banking Commission


It doesn't go far enough. Most recommendations are sticking plasters designed to look like action and please consumer groups. The rest is heavy handed political interference that will distort markets.

We need smaller banks, yes, so that it is no catastrophe when one fails. But politicians can't second guess how markets should be structured. Heavy handed regulation has caused the giantism because only huge banks can afford the cost. We need lighter regulation on smaller banks, and more onerous rules - much higher reserve requirements, for example - on larger ones, reflecting the systemic risk.

We don't need a Glass Steagall separation of high-risk and low-risk banking. High Street banks will still rely on investment banks for returns and investment banks will rely on them for deposits. Or they will set up unregulated bodies to get round the rules. What we do need is for customers to know how much of their cash is at risk, and how high the risk is. Simply demanding banks publish that figure is quite sufficient.

Many customers assume their deposits are totally safe. They are not, because governments print miney and banks are permitted to create a spial of shaky credit on the back of it. The key to avoiding crises is to enforce firm limits on the monetary authorities and much higher reserve requirements on the banks. Little or no regulation is needed beyond that.