Wednesday, April 13, 2011

Realistic Bank Reform: Deleveraging and Competition

The British authorities apparently take the task of bank reform seriously enough, which may not be the case of the US or the EU: bigger buffers, smaller banks.

The Vickers Commission interim report, which was released Monday, makes two main recommendations: the big British banks should hold a lot more equity capital against their assets and should rearrange themselves so that their retail banks can survive even if the rest of the bank hits a financial iceberg, on the one hand, and also should beef up competition, on the other hand, in particular by divesting some branches.

Sounds reasonable enough, even though not as radical as the “limited purpose banking” proposal (see Laurence Kotlikoff’s book, “Jimmy Stewart is Dead”) that we consider best.

Read the article in The Economist.

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