One of the most annoying aspects of Life After the Crisis is the utter refusal of banks to take responsibility for the costs they have imposed on the rest of us. This is directly related to their efforts to fight any and all interference with their God-given right to loot.
In the UK, for instance, the Bank of England and the FSA both recommended to the Independent Banking Commission that banks be forced to break up along retail-small business v. pretty much everything else lines was successfully beaten back. The ICB in its preliminary report did come out in favor of ring-fencing, which primarily serves to limit the way banks can use their cheap deposits to fund the riskier wholesale side of the house.
Banks have predictably screamed that any such change would wreck the economy. Since advanced economies grew faster when banking was more heavily regulated, simple-minded comparisons seem to disprove the banks’ stance, putting the burden of proof on them (well, in fairness, they employ enough think tank types that they can usually gin up something that bears a passing resemblance to an analysis to bolster their argument).
The Financial Times reports that a newly released study casts doubt on the banks’ claims:
The report, from the Ernst & Young Item Club group of economic forecasters, shows that the likely effect of the ringfence proposal, which is to be aired in full on September 12, may lead to a rise in costs for the nation’s biggest borrowers of up to 1.5 percentage points. The effect on output is likely to be no more than 0.3 per cent of gross domestic product.
But that does not mean this change would have no impact. The FT quotes Lloyd Barton, economist at Ernst & Young,
“Of course, it may have an effect on bank profitability,” he added.
I leave it to readers to judge what is really driving the banks’ vociferous protests: their concern for the state of the economy, or their own pay packages.