Germany's Oldest Private Bank, Berenberg, Calls for Bank Separation
July 25, 2012 • 8:30AM

An analyst from the German private Berenberg Bank has come out calling for separation of retail and investment banks along Glass-Steagall lines, according to Financial Times Economics editor Patrick Jenkins. Writing in his blog, Jenkins says that the Libor crime of the century has prompted calls to go beyond the Vickers ringfencing to "forcibly splitting up universal banks. The danger and potential expense posed by an investment bank to a retail bank are just too great, the reformers argue.

"The latest contribution to the argument comes from analysts at German private bank Berenberg, who make the case for a total split of activities and a forcible return of investment banking to partnership status. "

The Berenberg analyst is James Chappell, who formerly worked for Goldman Sachs. Jenkins writes that the "real focus of the Berenberg argument is essentially that the world should return to the old order of things in the U.S., when the now-repealed Glass-Steagall Act forcibly kept retail and investment banking apart....

"There is, all the same, a powerful argument for breaking up universal banks — not through legal intervention but through shareholder power. As the Berenberg note argues, owning shares in an investment bank today, particularly one that is part of a universal bank group, is unappealing. 'We do not believe that the current investment banking model is compatible with equity ownership due to the behaviors and incentive structure embedded in the industry' ... wrote Chappell, an analyst at Goldman Sachs Group Inc. in London from 2001 to 2009 before joining Hamburg, Germany-based Berenberg Bank, the world's oldest private bank.... Ideally, banks should be split up into retail and investment banking operations, though that may not be possible considering 'investment banks have hard-wired themselves into the system and remain too big to fail,' Chappell said."