On October 21, 2009
An Immodest Proposal: Break Up the Banks
Bank of England head Mervyn King has a solution for banks that have grown too big to fail: break them up. King, viewed within financial circles as an industry wise man, in a speech Tuesday in Edinburgh advocated separating banks’ core businesses of lending and taking deposits from riskier activities, such as proprietary trading, in which they buy and sell securities for their own accounts. His explanation for why that cleavage would strengthen the financial system is simple, but profound: Lending and taking deposits is essential to the health of the economy — trading isn’t. This approach, he said, . . . draws a clear distinction between different activities that banks undertake. The banking system provides two crucial services to…
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