The Independent Commission on Banking should avoid a one-size-fits-all proposal for the future of banking, according to the Adam Smith Institute.
The IBC published its interim report this morning with recommendations including the ring-fencing of retail operations within banks. But speaking to Money Marketing, ASI director Dr Eamonn Butler says the commission should not seek a formal solution.
He says: “I would urge them not to come up with a formal plan they impose on everybody and everybody is then carved up in the same way. That will not turn out to be right for anybody and you cannot change it when circumstances change.”
IBC chairman Sir John Vickers said in a speech in January the commission was looking at ring-fencing and suggested come form of separation between retail and investment banking may be required.
Butler agrees banks have become too large but says the best way to divide them is by introducing rules which lead the market to do it.
He says: “I think we need a rule whereby if people want their money completely safe and locked in a vault they should be able to have it. Simply being honest to the customer and saying this is how safe or how risky your money is will do most of the job.”
“Many people will want the Captain Mainwaring retail bank and some will be more happy to risk their money on international markets and so quite naturally you would then get lots of different banks evolving. Not just retail and investment but a whole spectrum.”
After today’s report a further round of consultation will begin with a final report due by the end of September.
For the full interview see this week’s Money Marketing.