THE Prime MinisterGordon Brown has ruled out a break-up of the banks in a bid to prevent future catastrophic financial collapses.
Mr Brown insisted that improved international regulation was the best way to ensure the stability of the system.
His comments put him at odds with the governor of the Bank of England, Mervyn King, who had called for the banks’ retail functions to be hived off from their more speculative ventures.
However, challenged by the Liberal Democrat leader Nick Clegg at Prime Minister’s Questions yesterday, Mr Brown insisted that such a split would not have averted the financial crisis.
“He has got to remember that Northern Rock was effectively a retail bank and it collapsed. Lehman Brothers was effectively an investment bank without a retail bank and it collapsed,” Mr Brown said.
“So the difference between having a retail and an investment bank is not the cause of the problem. The cause of the problem is that banks have been insufficiently regulated at a global level and we have got to set the standards for that for the future.”
Meanwhile, Chancellor Alistair Darling warned that “tough choices” lie ahead on public spending, but said a return to growth was the best way to tackle the UK’s rising debt mountain.
Mr Darling also attacked Conservative plans to slash the deficit as showing a “poverty of aspiration” and “wallowing in an age of austerity”.
Official figures released this week showed public borrowing at a record £77.3bn for the first six months of the financial year – and it is set to hit £175bn for the year as a whole.
But the Chancellor said: “To make the wrong choices, to refuse to invest, will simply mean that the economy gets smaller, we all get poorer, and even greater and deeper cuts are needed.”
“We have seen this before – the savage cuts of the 1980s meant whole swathes of our economy disappeared.”