The Idea of Breaking Up Big Banks Is Nonsense According to the Chairman of a Big Bank

HSBC’s Chairman Stephen Green has some interesting thoughts on the futility of trying contain financial crises:

The global financial industry should not be revamped to try to ensure no bank was too big to fail, HSBC (HSBA.L) Chairman Stephen Green said on Tuesday.
“It is unrealistic to believe that the industry can be reconstructed such that individual institutions are not too big to fail. Quite small and simple banks are too big to fail in a strict sense,” said Green, chairman of Europe’s biggest bank, in a speech at the British Bankers’ Association annual conference.
“The notion that the failure of a bank can be contained by the conventional legal and administrative processes for handling business failures is nonsense.”
Green said “narrow banking” was not the answer to ensure stability. “When you look at the different things that commercial banks do you can’t segregate those out meaningfully in this day of integrated capital markets,” he told Reuters in an interview after.
Peter Sands, chief executive of Standard Chartered (STAN.L), agreed that breaking up the big banks was not the answer.
“There is a case for restricting proprietary risk-taking, but (a new Glass-Steagall Act) is not the way to do it,” Sands said. “It gives an illusion of comfort, it won’t work, and it will be great for regulatory arbitrage.”

Posted by on June 30th, 2009 at 1:12 pm

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