Breaking up banks impractical, undesirable, says HSBC

HSBC Holdings Chairman Stephen Green said proposals to separate retail and investment banking are “unrealistic” and will slow economic growth because larger firms are needed to finance big companies.

“Calls for a return to some earlier age of narrow banking miss the point that both markets and their customers are now global, with complex and multiple financial needs,” Green said in the text of a speech delivered today in London. “It will be unrealistic, and also highly inefficient, to demand that business customers, for instance, use a range of institutions.”

Regulators and governments are exploring ways to reduce the risk of a repeat of the financial crisis after they were forced to provide $5.3 trillion of state aid to European banks. Bank of England Governor Mervyn King has backed a plan to split banks’ deposit-taking parts from their securities units to prevent taxpayers from having to shoulder the cost of future bailouts.

“It is impractical and undesirable to prescribe some ideal size or business model for a bank,” Green said at the conference, sponsored by Standard & Poor’s. “And it is unrealistic to think that there is some magic formula to reconstitute the industry.”

Banks should develop structures based on separately capitalised units to reduce the risk they pose, Green said.

Living wills, which would outline how to unwind weakened banks, deserve consideration, though they may become unmanageable if the details aren’t handled properly, Green said.