The problem we have with banking is that we cannot live without retail banking: day to day banking for people and small companies. Investment banking – or the gee-gees as I prefer to call it – affects very few people, and those that it does affect should be financially secure enough to take significant losses on the chin. Both types of banking have their place.
We ought to not regulate risk out of the entire system. Without risk their is no room for big rewards for big successes. However, we have currently insulated banks from risk by nationalising them. Big rewards for big success only work when they are accompanied by big penalties for big failures. Now the banks can take big risks and if it screws up the man on the street foots the bill. If it succeeds, the banks get their lolly.
So separate gee-gees from retail: the banks should be forced to split their operations into completely separate entities. The resulting retail banks should then be heavily regulated as to how they can borrow and lend, but also be heavily backed by government to protect depositors & borrowers, and ensure you and I get our pay cheques. The gee-gee banks should be lightly regulated and not at all backed by government. Goldman Sachs is where you go to take risks, make (or lose) your millions. Barclays Retail is where you get your mortgage and current account. Exciting and dangerous need to be conjoined, as do boring and safe. Presently we have exciting and safe for our bankers: a disastrous combination.
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