Nevertheless, I suspect that if we are going to have a system that keeps working long after the glare of the RC is gone, that a clean seperation will be an essential part of the medicine.
I don’t quite agree with this statement, and I will give you an actual counterexample.
When the GFC hit in 2008, in both the UK (where I was at the time) and the US there was huge political pressure for (and media focus on):
1) A split-up of large banks into a commercial banking and an investment banking arm.
2) A split-up of pure investment banks into a securities (sales and trading) and an advisory division.
It was, in a way, the equivalent of abolishing “vertical integration” within the global banking industry.
In the end, virtually none of that happened (save for the dismantling of prop trading desks by American investment banks, as per Dodd-Frank, and the restructuring of other rather marginal functions).
Looking back, I think it was a positive outcome that things sorted themselves out the way they did. For, the desired results were (largely) achieved by simply:
a) Strengthening regulations.
b) Strengthening Compliance functions (within the banks), and
c) Ensuring that a proper system of Chinese Walls between securities and advisory divisions was in place (within the investment banks).
I think it is fair to say that, a decade later, the global banking system (I am not talking specifically about Australia here) is in a far better shape also thanks to these changes.
Nonetheless, in terms of pure business model, I would say that the structure of the global banking industry has remained largely unchanged.
So, I wouldn’t rush to the conclusion that structural separation is always essential in these circumstances, because a) it may not be the crux of the problem, and b) there may be smarter and less drastic ways of dealing with the problem.
IFL Price at posting:
$6.90 Sentiment: Buy Disclosure: Held
(20min delay)
