Sunday, 10 April 2011

British government plans to allow investment banks to fail

The British government is planning to force banks to effectively separate their retail banking operations from their investment banking operations so that any future catastrophic losses in their investment banking arms can be isolated from their retail banking arms.

An interesting suggestion this because the reasoning behind this change is that if a bank sustains heavy losses from its investments like the Scottish banks have over the last couple of years, instead of using taxpayers money to bail out the whole bank, the investment banking operation will be allowed to fail with billions of pounds of losses to institutional investors.  After all, they're only bankers and they can afford it right?

So just out of interest, if any bank bashers are reading this and thinking this is a great idea, have you ever wondered where the extra money in your pension fund comes from?  Or the interest on your savings?  Or where the investment income that keeps your council tax down comes from?  No, didn't think so.

Knowing the the investment banking arms of UK-based banks will be sacrificed if the bank gets into trouble will deter investors and if investors stop investing in the banks they will lose operating capital and if they lose operating capital they will go the same way as Northern Rock.