Volcker warns bank ringfence is too weak to improve market

Tim Wallace
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THE BANKING ringfence in the UK may fail as the investment and retail operations will still be too closely linked, former Federal Reserve chairman Paul Volcker said yesterday, arguing a full separation of entities is more appropriate.

“These things tend to be permeable over time. You want to separate operations decisively? Don’t put them in the same organisation and tell them they cannot interact,” the industry heavyweight told the parliamentary commission on banking standards yesterday.

Volcker told the MPs and peers this is particularly vital in the case of bankers like proprietary traders being kept separate from rational retail staff, blaming highly paid investment staff for “infecting” the culture of other bankers.

The former Fed boss also argued it is impossible for a ringfence to work if the investment bank’s board is meant to maintain some independence from the group.

“If the group board is worried the investment part of the organisation, they are going to think about how they can use the bank part to support it,” he said.