News from Cass Business School

Volcker criticises plans for UK banking reforms

Former Fed chairman lambasts "ring-fencing" proposals in Mais lecture

Plans for major UK banking reforms fail to address the crucial question of how to cope with future financial failures, the eminent American economist, Paul Volcker, has warned.

Delivering the annual Mais lecture at Cass, the former chairman of the US Federal reserve attacked Britain's plans to "ring-fence" retail banking operations.

He told a packed audience of students, alumni and City professionals that "critical details are lacking" in the proposals put forward by the Coalition government's Independent Commission on Banking (ICB).

"The question will inevitably arise as to the financial and regulatory logic of maintaining a "retail bank" as part of what in most cases would appear a much larger highly diversified and "systemically significant" organization," he said.

"In any event, the nagging overriding question will still arise: how to deal with the imminent or actual failure of such a large, systemically significant, financial institution whether or not it is a 'bank'."

Mr Volcker, who was chairman of President Barack Obama's Economic Recovery Advisory Board until early this year, also said he was concerned by attempts to "resist new regulatory discipline for fear of impairing the markets".

He said: "When we count in the enormous economic losses consequent to the collapse of the financial system, the case for pressing forward with thoroughgoing reform should be uncontested."

Read a copy of Paul Volcker's speech

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