The UK establishment is engaged in one of those bizarre arguments over how to escalate regulations, long after a crash where the regulators failed to use the powers they had to stop trouble.
No UK bank went down in 2007-8 because a risky “casino” bank undermined a good retail bank. Northern Rock, Alliance and Leicester, Bradford and Bignley and HBOS all got into difficulties in traditional mortgage lending and High Street banking. The regulators did not try to make them keep more capital or to take a more prudent approach to bad loans, though they had the powers to do so.
RBS took over too many bad businesses with too little capital. The FSA, the Bank of England and the Competition Authorities could all have intervened in various ways to stop the damaging acquisitions or to make RBS hold more cash and capital against them. They failed to do so.
The UK economy needs better banking, not banking regulated to death. That requires more banks behaving more competitively. The governemnt should get on and split up RBS instead of arguing over how to stop a future crisis after 2015 or 2019. The problems are now.
Electrified fences will not solve the future problems either. Who turns on the current and when? Why will it be better than last time when the regulators all failed to see the crisis coming?