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Bailed-out banks to be broken up, retail banking competitors encouraged

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This BBC article does a good job of explaining what the government is planning to do with all the banks that it bought huge shares in with taxpayer money over the past year or so. The long and short of it seems to be that the existing big-name high street banks are to be broken up and a number new players in the retail banking space will be created.

This will, hopefully, increase competition in the market for mainstream financial products such as current accounts, mortgages, savings and investments, which can only be good for British consumers.

There is some talk of the banks part-owned by taxpayers being made to sell off their investment-banking arms in order to minimise risk. However, there still seems to be little interest from the government in introducing any kind of Glass Steagall style legislation which would ensure separation between retail and investment banks.

It has been argued that this kind of legislation would be beneficial, since it means that the banks which provide essential services to the wider economy would not be put at risk by the kind of risky behaviour frequently indulged in by investment banks. It would also combat the problem of these organisations being considered ‘too big to fail’ – since an investment bank which does not have any involvement in more mainstream, high-street banking practices, can more easily be wound down when it goes bust.

It’s good to see a little progress being made, but it seems like the UK financial sector is still a long way from getting the serious reform that it badly needs.

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