When the fog cleared during the months following the depths of the recession, governments, watchdogs, and experts determined that “the system” had taken advantage of the everyday person. Investment banks made miserable investments, and failed – on the backs of people entirely uninvolved.
The British, following similar measures taken by the Swiss, are close to the right solution. On the morning of September 12, the government-created Independent Commission on Banking released a final report on banking reformation. The report proposed a separation (“ring-fence”) between retail banking and investment banking. Due to loose regulations, the two had previously been perilously intertwined.
ICB Members, left to right: Clair Spottiswood, Bill Winters, Sir John Vickers (Chair), Martin Taylor, Martin Wolf. Source: The Telegraph
This is, in simplicity, a response to bad business ethics. Though it isn’t inherently evil that banks use depositor money, it is irresponsible and unjust for the burden of terrible investments – investments on sub-prime mortgage “packages,” otherwise known as CDO’s – to be placed on people who had no decision in the matter. It is even more unjust for investment bankers to be relatively unhurt and to receive large bonuses, while the average person faces an unstable and constricted economy and job market.
The British and Swiss are setting a precedent for responsibility.