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Big issue splits Chancellor and the governor

Chancellor Alistair Darling and Bank of England governor Mervyn King have clashed again on the issue of whether big banks should be split up.

In his Mansion House speech, King called for big banks to be split between investment and retail businesses. He said: “If some banks are thought to be too big to fail, then they are too big. It is not sensible to allow large banks to combine high-street retail banking with risky investment banking. Something must give.”

But in his speech, Darling said: “The solution is not as simple, as some have suggested, as restricting the size of banks. We have learnt that you do not necessarily need to be a big bank to threa- ten to bring the system down.”

The Chancellor welcomed US president Barack Obama’s raft of measures to tighten financial regulation in the US. The proposals would see systemically important firms regulated by the Federal Reserve and forced to hold higher levels of capital. Whether a firm is deemed “systemically important” will depend on its size, links with other institutions and significance of its lending.

Darling made no mention of any further regulatory change in the UK. He said: “Here, we have already tightened up the system.”

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