Saturday, October 31, 2009

Britain to Break up Banks - Now Why Can't We do the Same Thing Here?

Our British friends across the pond, seem to have a much more sensible head screwed on their shoulders. The Telegraph is reporting that Alistair Darling, the Chancellor, will soon announce the breakup of the British versions of Citigroup and Bank of America  a.k.a. RBS, Lloyds and Northern Rock. In a note titled "High street banks to be broken up", the Telegraph reports that:
Treasury sources have told The Sunday Telegraph that the move (to break up the banks) will be announced to the House of Commons after the European Union made it clear that the state aid pumped into Lloyds Banking Group and RBS meant that they had to be reduced in size.
Officials said the move would increase competition on the high street and would mean a better deal for customers looking for mortgages or current accounts which did not charge fees.
Under the deal, the new institutions will not be allowed to be taken over by any purchaser which currently owns a British retail bank. Ministers will stop this happening using their powers as controlling shareholders in Lloyds, RBS and Northern Rock, rather than by new regulations. Instead, likely purchasers will come in from the US, Australia or the Middle East.
 Which means that established British banks like HSBC, Barclays and Santander will not be able to buy these assets and get even more bloated. That way you don't have another financial blackout when your too-big-to-fail monster gets indigestion.
"What we are talking about here is basically three new banks," a senior Treasury source said. "We want a better deal for the taxpayer after all the investment that they have made."
Now if only Bernanke and Geithner possessed the good sense to "bail-out" the taxpayer by breaking up the too-big-to-fail U.S. banks and restoring the Glass-Stegall act (prohibiting investment banking and trading from accessing consumer deposits and Fed liquidity for their gambling pursuits).
Alas the U.S. taxpayer has no such luck.

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