Mervyn King, the governor of the Bank of England, has tonight made a big intervention into the debate on banking reform. In a speech at Buttonwood, New York, he describes the Basel III bank regulations as inadequate and proposes a much more radical structural breakup of the banks:
"If [Basel III] is a giant leap for the regulators of the world, it is only a small step for mankind. Basel III on its own will not prevent another crisis." // 4. Stunningly, Mervyn King imagines the "abolition of fractional reserve banking":
"Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets."
