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ABI backs King’s bank split proposal

The Association of British Insurers has backed Bank of England governor Mervyn King’s proposals for splitting up the banking sector.

On Monday, King reiterated his beliefs that the banking sector should be split between investment and utility banking. This was quickly rebuffed by Prime MInister Gordon Brown, but now the ABI has shown its support for the idea of splitting the sector into more “manageable units”.

ABI director of investment affairs Peter Montagnon says: “While we do not see a formal Glass-Steagall approach as practicable, it might be helpful if market pressures led to banks reorganising themselves into more manageable units, with either a utility or an investment banking focus.”

The trade body says the likely application of more rigorous capital requirements to the trading book of banks would promote such a market development.

Montagnon says: “It is vital that that any restructuring of bank capital must be done in an orderly way, so as not to destabilise the market in subordinated bank debt, for example through forced early redemption at a discount, as this market is critical for funding UK pensions.”

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