Splitting the banks

Euroland

Since beginning of the crisis I was advocating the idea of splitting all the banks into 2 separate units/entities, one would take retail activities, first of all, daily operations, depositing and lending functions, while the other unit/entity would take care of all the other banking activities, first of all associated with investment banking.

All the units of the first type should be controlled (50% + 1 share) by the State with remaining shares sold into private hands; at the same time units/entities of the second type should be fully sold into private hands and bear all risks by themselves.

Now, finally, it appears that this idea begins gaining some support among senior international financial/banking leaders:

Bank of England governor calls for banks to be split into separate utility companies and risky ventures

Bank of England governor, Mervyn King, on Tuesday night called or banks to be split into separate utility companies and risky ventures, saying it was “a delusion” to believe tougher regulation would prevent future financial crises.

http://www.finfacts.ie/irishfinancenews/article_1018260.shtml

Trichet warns on "financial gambling"; Says banks should return to “traditional role of providing a service to the real economy”

http://www.finfacts.com/irishfinancenews/article_1018230.shtml

King Opens Rift With Brown on Whether to Split Banks

Former Federal Reserve Chairman Paul Volcker and Nobel laureate Joseph Stiglitz are among those urging governments to curtail the size of banks or risk future crises.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aV0G8sl_4YBE


Following the news, I would like to conduct a forum poll on the subject:

Would you support the idea of splitting the banks (including the Irish banks) into two separate businesses?

Flamed Diving

This was the case before the 80's, and banking systems were much more stable then. I would like to see a return to a split between "traditional" and investment banking, for this reason. I am aware that there is an efficiency/stability trade-off. But anyone who looks at the world today and attempts to argue for greater "efficiencies" would want to get their head checked.

Hasschu

Irish banks are too small to succeed without the backing of the Irish gov't. The problem in Ireland is a lack of responsible governance in the banking sector and a gov't and regulatory climate of anything goes we will not step on your toes as long as the money flows. Economies of scale taper off at institutions 20% the size of the major banking enterprises in the US, Europe and Japan. In Ireland we could attempt to grow one banking institution that could compete on a global scale. With strong gov't backing it might even succeed. Ireland is an open market and has been and will continue to be served by off shore banks. If there is a healthy business climate in Ireland the bankers will come and they will lend. On the other hand if the business climate is not healthy the Irish banks will not be lending. The tragedy of NAMA as a saviour of Irish businesses by rescuing the banks and developers is that it is a millstone around around the economy's neck and makes a bad situation worse.