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Banking

Volume 714: debated on Thursday 12 November 2009

Questions

Asked by

To ask Her Majesty's Government what assessment they have made of the benefits of the separation of investment and retail banking in the Glass-Steagall Act 1933 of the United States before such separation in the United Kingdom. [HMT][HL6329]

To ask Her Majesty's Government further to the answer by Lord Myners on 3 November (Official Report, col. 149) saying "the decoupling of investment banking from retail banking has never been achieved anywhere", whether that answer took account of the Glass-Steagall Act 1933 of the United States which operated for 60 years; and whether they will publish the evidence for his statement. [HMT] [HL6330]

To ask Her Majesty's Government whether they will discuss with the Governor of the Bank of England his proposals for separating investment banking from retail banking. [HMT][HL6331]

The Government recognise that the Glass-Steagall Act 1933 prohibited, in the United States, commercial banks from underwriting securities and investment banks from taking deposits. The Government note that the Act was repealed in 1999.

As set out in Reforming Financial Markets in July 2008, the Government do not believe that provisions imposing artificial limits on activity are an appropriate means of managing the risks posed by systemically significant financial institutions.

Instead, the Government’s policy for dealing with financial firms whose failure could pose a systemic threat includes:

enhanced prudential regulation, including differential capital requirements for banks’ riskier activities;

maintaining stronger resolution arrangements, including the requirement that firms prepare “living wills”; and

general measures to increase the efficiency and stability of financial markets, including stronger market discipline and improvements to market infrastructure.

The Chancellor of the Exchequer and the Governor of the Bank of England meet regularly to discuss a range of issues.