Volcker: Ring-fencing banks can be ineffectual

24 September 2012

Incoming changes to banking regulation in Britain will not ensure taxpayers are fully protected should financiers collapse in the future.

That is the opinion of Paul Volcker, ex-chairman of the Federal Reserve (Fed) and creator of the Volcker Rule in the US, who believes the reforms suggested by the John Vickers and the Independent Commission on Banking (ICB) may not go far enough.

Under the terms of the proposals, banks will be forced to ring-fence their retail operations from the investment divisions, as the ICB believes this will help temper risk-taking and therefore reduce the likelihood of companies needing a bailout.

However, during an interview with the Daily Telegraph today (24 September), Mr Volcker noted that in his experience, ring-fencing "is not terribly effective".

"It only works in fair weather. But it doesn't work in foul weather. They have already run into problems and they are bound to run into more," the former Fed chief warned.

By Gary Cooper

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