Jonathan Guthrie, the Financial Times City of London editor and author of the Lombard column, has been apparently commissioned to write a public defense of universal banking, as he warns today against "Glass-Steagallism." The defense is however weak. Guthrie warns that a "shake-up" of banks would further jeopardize an already weak credit supply.
"Politicians need better evidence on the impact of Libor manipulation before they split investment banks from commercial and retail parents, as many commentators are now proposing," Guthrie writes under the headline "Glass-Steagallism and Rate-Rigging Impact." Admittedly, "If the likely impact was modest, it would not preclude an outburst of Glass-Steagallism. The argument might be that rate-rigging represents a final breach of trust between investment banks and the public. Certainly, the U.K. government now looks misguided in planning to permit some derivatives transactions within the ringfence it is imposing on the dealings of U.K. retail banks with individuals and small businesses. But politicians need to ponder further shake-ups of banking dispassionately, given that the supply of credit to businesses and consumers remains weak. The emotion surrounding Barclays is fuelling extrapolation from the particular to the general. The dangers of that are obvious."