Smart management might have averted the banking crisis, not barbed-wire fences

Martin Vander Weyer’s Any Other Business

Will I join the ticker-tape parade to welcome back Senator Carter Glass of Virginia and Congressman Henry B. Steagall of Alabama? Well, I might lurk in the crowd, but I certainly won’t be cheering. These venerable legislators sponsored the US Banking Act of 1933 which built a wall between securities trading and deposit-taking that remained in place until 1999. To use the labels invented by the economist John Kay, it separated the ‘casino’ of Wall Street from the ‘utility’ of retail banking on Main Street. And there’s a clamour to rebuild it brick by brick, beginning with the so-called Volcker Rule (devised for Barack Obama by former Fed chairman Paul Volcker) which would limit the size of banks and stop them engaging in ‘proprietary trading’, which means staking depositors’ cash on huge bets in securities markets. Britain never had a Glass-Steagall Act — instead, until ‘Big Bang’ in 1986, we had closed-shop stock exchange rules that achieved a similar division — and now Nigel Lawson and Vince Cable are among the voices arguing that it’s high time we had one.