BBA pushes for no ring-fencing - I think they are wrong

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worldtraveller wrote: »

While Robert Peston, the BBC Business Editor, said: "UBS's $2bn rogue-trader loss has not come at a great time for those who argue investment banking and retail banking should remain integrated."

Back to front.

A bank can lose money through authorised or unauthorised trading. Either way, if it folds, it's the creditors who need bailing out.

But a bank is less likely to fold as a result of a trading accident if it has a strong retail arm to cover its losses temporarily.

There's a danger that ring-fencing can create a crisis out of nothing by forcing a bank's investment arm to default while the bank as a whole remains solvent. If that threat arises, no doubt we'll see the Chancellor and the Treasury mandarins back in panic mode desperately trying to find a way to break down the ring-fence so that the retail arm's assets can be used to rescue the investment arm. How brilliant would that be.