Regulation versus classical banking

Jo Johnson, Head of Lex, the sophisticated team of commentators writing a column on business and financial topics in the Financial Times, wonders if more regulation is really the solution to current ills (June 19). “Many are skeptical” he writes, one central banker even telling the London newspaper that “macro-prudential supervision gives rubbish a bad name.” Can central bankers really spot bubbles better than the market?

“In the UK, Mervyn King, Bank of England governor, used his Mansion House speech (last Wednesday) to push for “smaller banks” and the separation of high street/commercial banks from their investment banking arms” he adds.

Readers of this blog will recognize the “classical” or “narrow” banking proposal that many economists and decision makers deem necessary to prevent future crisis. Welcome to the classical banking club Dr. King.