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The best part of breaking up...

The myth that national regulators are pulling together is blown apart by the ongoing debate around banks and speculative trading.

Let us set aside the fact that all trading – whether with rivals or with clients – is speculative.

After the US repealed enforced separation of banking and speculation through the Glass-Steagall Act, it took less than a decade for the industry to bring about crash of even greater proportions than that of 1929.

So in June 2010 the Dodd-Frank Act reined it all in again, with Paul Volcker’s rule that bans deposit-taking organisations from proprietary trading or owning > 3% in firms that make risky investments. That should take effect on 21 July 2014, already two years late.

In September 2011, a UK commission chaired by Sir John Vickers argued for ring-fencing retail banking operations off from riskier businesses. This idea was supported in the Financial Services (Banking Reform) Bill, read in parliament on 9 May 2013.

The EC commissioned a report from a group chaired by Erkki Liikanen, governor of the Bank of Finland, which said “proprietary trading and other significant trading activities should be assigned to a separate legal entity” in big banks, which includes market making.

Every one of these is potentially a step back from the abyss we saw in 2008 but the first legislator to deliver will penalise its banks against those in other jurisdictions.

France claimed to be the first mover with its version passed in February, but that ignores market making. Clearly no national regulator is in a hurry to take the lucrative business of speculating away from banks.


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