Libor probe proves banks too big for UK

Author: | Published: 24 Jul 2012

The investigation into the London Interbank Offer Rate (Libor) has confirmed international financial institutions have become too big for the UK, investment bank general counsel have warned. But splitting commercial banks from investment banks is the wrong solution.

The $453 million penalty imposed on Barclays last month amid allegations of Libor manipulation prompted broader investigations into the rate-setting process within Barclays, and 16 other global financial institutions. It also provoked renewed pressure on policy-makers to split commercial banks from investment banks, as the US Glass-Steagall Act 1933 famously called for.

In 2010, the US regulators took a step towards Glass-Steagall with the Volcker Rule, which banned banks from proprietary trading but included a number of exemptions and loopholes. Other regulators such as the Basel Committee have instead opted to strengthen the universal banking model with higher capital...