Fears about the impact of QE and the awful state of the banks could be “likely to reopen the U.K.’s debate about the need to impose a Glass-Steagall split between retail-commercial banks, where firms and households store their deposits, and investment banks, which take big risks,” Daily Telegraph financial columnist Liam Halligan wrote April 5. Halligan has consistently supported the adoption of Glass-Steagall standards, both in the U.S. and U.K.
In an article titled “The Real Reasons Why Draghi Flirts with QE: The Fear Is That Money Raised from Quantitative Easing in the Eurozone Will Just Be Used To Prop Up Banks That Need To Be Allowed To Fail,” Halligan noted the discussion at a debate he chaired last week at London’s Cass Business School. On the panel was former Chancellor Lord Lawson, a long-time advocate of Glass-Steagall. Lawson was even more concerned about the fundamental problem of the Western banking system than he was about QE.
“I don’t believe our problems can be solved by a ring-fence between investment banking and commercial banking,” he said, referring to the Vickers Commission policy, which will not come into effect until 2019 anyway. “The Vickers model of corporate governance is one that has never worked anywhere in the world, and I don’t believe it is workable,” said Lord Lawson. “And I don’t know any senior banker who believes privately that this model is workable.”
Lawson is a leading member of the Parliamentary Banking Commission, whose “remarks carry enormous political weight, and are likely to reopen the U.K.’s debate about the need to impose a Glass-Steagall split,” Halligan wrote.
“‘There is a fundamental problem if you bring investment banking, with its fundamentally different culture, into high street banking…. The fear of failure has been removed from our banking system,’ Lord Lawson boomed. ‘And unless banks are allowed to fail, then we are going to have problems time and time again.’ He called for a more radical approach and renewed his long-standing call for the U.K. to implement a full Glass-Steagall separation of investment and commercial banks. ‘Regulators will never succeed in regulating the universal banks, never,’ he warned. ‘It is foolish to think that you can.'”