Broken down or broken up?
Yesterday Nick Clegg, Lib Dem leader and Demos author, asked the Prime Minister if he would consider breaking up the nationalized banks so that they would never again be ‘too big to fail’. This is the third time that Clegg has used his PMQ spot to ask Brown about this issue and the third time he has been rebuffed. Brown refuses to contemplate the idea that investment functions (inherently risky, driven by short term profit and often highly complicated) should be separated from retail functions (lower risk, long termist and relatively simple). It is a debate that needs to be had, the taxpayer owns banks and, so, the Government has an increased responsibility to force those institutions to act in the interests of us all as well as in the interests of profit; the return of public outrage over bonuses shows us that people are not prepared to carry on as before.
We should break up the nationalised banks– not simply to separate functions but (ideally) to make them smaller, more flexible and to diversify the supply of financial services. The terrifying realization, that these institutions could bring the entire country to its knees, came as a shock to most of us. Government has a duty to ensure that the banks can never become millstones around our national neck again; I believe that smaller banks are a step in the right direction.
Brown’s response to Clegg’s question lent unintentional support to this view. He highlighted the fact that Lehman Brothers was solely an investment institution and that it too collapsed; this is true but misses the point. Some businesses will always fail, banks included, but what is unique about Lehman is that we were free to let it. Unlike with Lloyds TSB or Royal Bank of Scotland – which both mixed investment and retail services and had millions of ordinary customers – Lehman could be allowed to go bust because it wouldn’t wreak fatal havoc upon the wider economy. In this instance, perhaps, small really can mean beautiful.