Speaking at the Treasury Select Committee this morning, Turner said that he liked US treasury secretary Timothy Geithner’s idea not of limiting the size of banks but of imposing stringent capital requirements on them.
He said the FSA and the Bank should think about introducing a sliding scale of capital requirements which would mean larger banks have to hold higher amounts of capital as would those banks involved in more risky trading.
He said: “It’s a tax on size. I think the idea of a tax on size, although it was not in the Turner review, I think is one that we do need to think about, and it is one we need to think about on a global level.”
He also warned against “iconising” the small banks model because although it would be different, it would still have its problems.
He said: “If they were very small we could have a different systemic problem. Lots of small banks have lots of interconnectedness and lots of potential domino effects. Remember that the 1929-33 banking collapse in the US was a banking collapse of lots of small banks, so we have to be careful of not iconising the small model.
So I don’t think there is an easy definition of what is the most stable banking structure between small and large banks.”