Am I stating the bloody obvious?

Until recently (1986 in the UK with "Big Bang" and 1999 in the USA) there was a clear division, established by custom, practice and law in both these major financial centres that Investment Banking (what was really mainly stockbroking at that point) and Commercial Banking were kept strictly apart and an instiution had to be one thing or the other.

Of course the Commercial Banks were engaged in some levels of proprietary trading, but overall they took the view that their balance sheets were full of depositors' money and that anything more aggressive than that would be inappropriate. The main exceptions, as ever, were mainly in the US where these restriction - that had been imposed by the Glass-Seagall act in 1933 to curb speculation by Banks after the Wall Street Crash - were resented, particularly as it was seen that London was becoming a far stronger financial centre after deregulation.

At this point it might be good idea to address the abuse and calumny to which "bankers" are often treated these days. More often than not such abuse is based on ignorance (particularly on the part of journalists) or blatant misrepresentation (politicians - especially Vince Cable, who I otherwise respect).

The whole sub-prime and CDO debacle that triggered the banking crash - and here I believe the abuse is at least partly deserved - was the product of a global game of pass the parcel where the parcel was never to be unwrapped, indeed was to be ever more packaged and whose players, with a very few exceptions ( isn't that right Mr. Paulson? ) were in blissful ignorance of the realities of the game. The problem was that the capital required was truly vast and, being in turn geared (leveraged for the hard of thinking) multiply, was never properly accounted for in terms of risk. The "what-ifs" were never cautious enough.

So the boys in the "Casino Bank Departments" were making greater and greater demands on the capital of their parent establishments. What was the point of all the breast-beating after Leeson and Barings? A simple "follow the money" approach was needed there and history was repeating itself in a very obvious way. However, all this was happening at a time of perceived boom in the real economies - low interest rates, rising equity markets and (at a consumer level) seemingly endless rises in property prices. The "Good Bank" departments had the stuff coming out of their ears and couldn't work out what to do with it all. When the people on the first floor, whose activities they really didn't understand (or when they got a glimpse of understanding were too frightened to examine more closely) asked for more capital they got it and the two questions that were never asked were "why?" - to ensure it was not disappearing or over-exposing them and, perhaps most importantly "is this what we should be doing with depositors' funds" to answer the ethical questions. I have not mentioned shareholders' funds because they were the ones I believe were deceived in the matter of answering a simple question - "am I investing in a deposit-taking institution or an investment bank?".

So, to revert to the title - what I think is the bloody obvious -let us bring back the segregation to a  great extent. Deposit takers will be boring and safe and you can put your money in those shares - or you can go into an Investment Bank and get on the thrill-a-minute ride and all that entails, In the words of a certain famous mammal - Simples!!

Two side-effects of this would be a more honest rating of the risk-premium to be attached to financing Investment Banking, rather than just going to Daddy Bigbank for some of his surplus, and the second, I predict, would be a move back to a partnership or at least boutique approach.

On a personal level, I am happy with Investment Banks - all of the people I have ever worked with in this area (OK - I could name one or two exceptions - but won't) were above-average people, sometimes startlingly so, in terms of intelligence, integrity and work ethic. I just think the honest labelling is missing and required.

I want to see the sign above the door saying "Bank" or "Investment Bank"(Casino if you are still feeling bitter!!) - and know my risk profile as a depositor or investor.

Dum Spiro Spero.