UKFI bosses quizzed on Glass-Steagall and Northern Rock

The leaders of United Kingdom Financial Investments (UKFI) appeared before the Treasury select committee in Parliament today. UKFI chairman Sir David Cooksey and chief executive Robin Budenberg were questioned over a potential separation of investment and commercial banking and the future of Northern Rock, with Labour MP Chuka Umunna quizzing Sir David about a number of different options regarding the future of the banking sector.

He referenced three possibilities: the option of re-instituting a Glass-Steagall act format of separation of commercial and investment banking; an intermediate separation such as those introduced by Senator Chris Dodd and Congressman Barney Frank in America; or simply no separation at all. Umunna went on to ask Sir David whether his organisation had carried out analysis into the likely impact such measures would have on the value, “in particular of RBS” (Royal Bank of Scotland) if  the Glass-Steagall act or an intermediate separation were suggested.

Watch it (10:33:20-10:39:52):

Following Sir David’s response requesting “more specifics” before producing an answer, Umunna referenced a speech concerning the possibility of separation of commercial and investment banking which “wiped billions” from the value of banks. He then asked whether a separation proposal from the Independent Commission on Banking (ICB) would considerably downsize risk for any future sale we would see of public assets, suggesting:

“Presumably they didn’t fall in value because they wouldn’t recommend separation?”

To which Sir David responded:

“The reaction of markets on Monday was one of continuing uncertainty… Were there a Glass-Steagall type separation there would likely be a diminution in value. “

Umunna pursued the issue over the extent to which the Chancellor, Chief Secretary to the Treasury and civil service figures had discussed with the ICB the effect on the sales process from some of the separation proposals; Budenberg explained that they had “discussed with the Treasury” the separation proposals about challenges facing future value.

Despite having spoken with other political figures Budenberg insisted these were merely part of a “broad discussion” and that he “didn’t want to rule anything out” regarding a potential sale of RBS. This included not ruling out bank sales before the ICB reports in September.

Finally, when asked about the future of Northern Rock and questions over a potential mutualisation of the organisation, Budenberg responded by confirming that this was an option. Umunna has previously called for remutualisation of Northern Rock in an Early Day Motion that is supported by the likes of Sir Menzies Campbell and Peter Bottomley.