Sep
28
'Too big to fail' vs 'breaking up the banks'
There is a problem in UK banking that's stalling our recovery and it goes something like this:
Banks have two main components: high street lending & saving, and investment banking. The investment banking side took far too many risks in dodgy sub prime investments and lost all the money. However if the high street lending & saving side of a big bank fails it does huge damage to the economy, so the government steps in to fill the gap. Now the banks are required to shore up their investment banking risks with actual capital so that they don't need bailing out again.
Banks have two main components: high street lending & saving, and investment banking. The investment banking side took far too many risks in dodgy sub prime investments and lost all the money. However if the high street lending & saving side of a big bank fails it does huge damage to the economy, so the government steps in to fill the gap. Now the banks are required to shore up their investment banking risks with actual capital so that they don't need bailing out again.
