Bank of England Director Speaks about Glass-Steagall
August 1, 2012 • 11:22PM

The Bank of England's (BOE) Executive Director of Financial Stability, Andy Haldane, gave an interview to Open Democracy in which he spoke of Glass-Steagall. Haldane is among the top five directors at the BOE and is considered the "intellectual" of the bank who has been studying "where things went wrong" and in that context has written in the past a very interesting piece on Glass-Steagall. He was interviewed by William Davis of Oxford University.

Haldane criticizes the "too big to fail" idea, "mathematical" models being applied to financial institutions, and the idea of shareholder value whereby 5% of the owners of the debt and equity of the bank determine policy. He is then asked about how long it would take to get the reforms necessary to change the system, to which he answered:

"This is a story about complex systems, so, knowing what the trigger would be is very difficult to pin down. Often it's the smallest thing. It's that small flap of the butterfly's wings which leads the whole sociology of this to shift. Who knows — we might have been seeing it over the past month with the Libor fixing scandal. Certainly if you read what's written in the press about the significance of the Libor issue, it's partly about the significance of Libor, but it's partly about the steady accumulation of issues where things have gone quite wrong and mounting discontent. A month ago, people were not digging up the body of Glass-Steagall and saying this is what we need. If you read the newspapers today, you find a rather different rhetoric out there about what might be needed to solve the Libor problem, but actually more than that, the Libor problem and the PPI mis-selling problem and the bonus problem and so on. Who knows whether this time it'll be the event that triggers bigger change?

"A lot has already happened. Perhaps more than we give ourselves credit for, about changing the narrative around banking and finance. If you'd asked me even four years ago whether I thought people would be openly discussing ring-fencing and restrictions and breaking up banks and splitting them in two as a core part of the regulatory discourse in the U.K. and internationally, I'd have said that sounds a little far-fetched. But now it is very much part and parcel of the discourse that's going on about what's needed to solve this problem. I think that's a relatively large leap forward in a relatively small space of time.

"Pre-crisis, the stories we told about the biggest banks in the world, and the way in particular way we sought to regulate them, was not just hands off, but it took as an article of faith that they would be less risky if they were diversified in their activities, and were therefore better off with a lower regulatory hurdle. We've had a complete reversal on that. We're now looking to raise the regulatory hurdle on them, both absolutely and also relative to some of the smaller firms. You could argue about whether that hurdle has been heightened sufficiently, and the answer might be no. But in terms of how we're thinking about that problem, or conceiving of it, that has changed pretty dramatically, in what — in regulatory terms — is a pretty short space of time, three or four years...."

In the context of an article on the financial results of Tullet Prebon, the brokerage run by pro-Glass-Steagall advocate Terry Smith, the Financial News writes that "Smith, a high-profile commentator on the financial industry, this morning renewed his calls for the resurrection of a Glass-Steagall style separation of investment banks from retail banking operations....

"He told Financial News that this remains 'the main thing to be done'. He added: 'The type of people and conduct is very different between those two types of organizations. The retail business is quite dull and boring, it's a quasi utility — while the investment banking business is about product innovation and is much more international. Investment banks should not be allowed to use funding from the retail bank to drive that business.'"