Government may break up big banks

On Friday the Government announced that it would launch an inquiry into banking reforms including a close look at whether investment and retail operations should be separated from each other.

The IBC (Independent Commission on Banking) will also take a look at if Britain’s top street banks should be split up in order to increase competition among banking institutes.  Six banks currently control about 90% of all the deposits made in Britain which is a far higher overall figure than in both the US or Germany.

After the financial crisis and the government was forced to bail out Lloyds banking group, the RBS, and Northern Rock fears grew that the British banks had grown too large to fail.

As the debate rose over how to prevent the need for future banking bailouts top banks including Standard Chartered, HSBC, and Barclays were warned that they may have to quit serving those in Britain if the commission believes that they need to be split up.

A portion of experts believe that if the investment arms of banks were divided then their retail operations that happen on a daily basis would help stabilize them.  However, critics of this point of view believe that if such a split were made Britain would no longer be as competitive in the banking sector.

The final analysis of the inquiry will be published next year in September of 2011.