Mervyn King favours narrow banking

Bank of England Governor Mervyn King has added fuel to the debate on bank regulation by favouring the break up of banks so that deposit taking and payments are clearly separated from riskier trading and other activities, FT reports.

In doing so, King has taken a position opposite to that of the UK Treasury on the subject. One corollary of limiting the scope of banks' activities is that it will automatically make banks smaller and more manageable. My own view is that, since this approach may not be practical, it would be better to limit the size of banks.

The current thinking, especially in the US, is to focus on more stringent capital requirements for large banks so that there are disincentives for getting too big. I have argued this won't work- and King appears to be of the same view.