UK's Darling: Breaking up banks not the answer

Thu Jan 28, 2010 8:00am EST
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By Sumeet Desai

LONDON (Reuters) - Breaking up banks and going it alone in reforming regulation is not the magic solution to avoiding future crises, British finance minister Alistair Darling told Reuters on Thursday.

In an interview ahead of going to the World Economic Forum in Davos, Switzerland, Darling also brushed aside concern that UK government bonds were a ticking time bomb, pointing out Britain's funding requirements were lower than many other countries.

U.S. President Barack Obama sent shockwaves through markets last week with proposals to force commercial banks to cut ties with hedge funds and private equity funds and to stop proprietary trading.

Darling said he was still waiting to see more detail on Washington's plan but it was clear he would have preferred a more multilateral response which would have reduced the risk of firms jumping between jurisdictions.

"I have always thought to separate banks doesn't deal with the full problem ... It is the connections between institutions that cause problems not the legal entity," he said.

"The large bank/small bank division again experience shows does not answer the question either of Lehmans," he said, referring to the giant U.S. investment bank whose collapse in 2008 almost sent the entire global banking system into ruin.

More than ever, Darling said, the crisis showed that any responses had to be international.

"Everything we do has to be a global solution otherwise we will get arbitrage. We will get people simply choosing to set up shop outside jurisdictions where it might be easier."   Continued...