Michael Meacher today claims there will be another financial crisis owing to the failure of John Vickers to recommend the splitting of investment and retail banks, and owing to the growth of exchange traded funds.
I think he is looking in the wrong direction for future financial problems. Most informed commentators are concerned about the state of the public finances in a number of countries, and the impact on banks who own large quantities of government bonds if some of those countries default or move to substantially higher interest rates under market pressures.
The failure to split investment from retail banking is not going to bring the system down. Large retail banks need careful regulating even without investment banking arms. Northern Rock and Lehmans were segregated. Most Exchange Traded Funds are owned by pension funds, charities and individuals who do not borrow to buy them, and most Exchange Traded Funds are ungeared portfolios of shares. Such ungeared investments did no damage to the system in 2007-9 and there is no reason why they should in the future.