UK Think Tank Says Bank Reform Proposals Don’t Go Far Enough
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09:49 AM
LONDON -(Dow Jones)- Proposals to reform U.K. banks may reduce the probability of individual bank failures but are unlikely to prevent another financial crisis, a U.K. research group said Thursday.
The National Institute for Economic and Social Research said recommendations put forward by an independent commission on banking reform put too much faith in regulators and more fundamental reform of bank governance is needed.
Angus Armstrong, director of macroeconomic research at the institute, said in a research paper that the commission’s proposal to ring-fence retail banking from investment banking within an institution may not be sufficient to avert future crises. He said it would be better were banks’ retail and wholesale units separated completely.
Armstrong added there is a strong case for prohibiting wholesale banks from operating with limited liability, under which owners lose no more than their stake in a firm in the event of its failure. They should instead be run as partnerships, or with unlimited liability, to better ensure bankers don’t take excessive risks in the knowledge they are unlikely to bear heavy losses, he said.
-By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; jason.douglas@dowjones.com
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