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Bank Of England Governor: Break Up The Banks

Mervyn King, governor of the Bank of England, wants banks to separate their everyday activities from other riskier ventures. King addressed the issue during a speech in Scotland. From the Financial Times:

The Bank governor wants to see the utility aspects of banking — payment systems and deposit taking — hived off from more speculative ventures such as proprietary trading. "There are those who claim that such proposals are impractical. It is hard to see why," he said.

Although he said that ideas to force banks to hold debt that automatically turns into equity in a crisis were "worth a try", he downplayed their likely effect. "The belief that appropriate regulation can ensure that speculative activities do not result in failures is a delusion".

The Treasury and the Financial Services Authority in Britain have rejected the idea of splitting up the banks. British Prime Minister Gordon Brown has focused his efforts on requiring banks to create "living wills" which would help regulators wind them down in the event of bankruptcy.

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