Ex-Federal Reserve chief Paul Volcker says breaking up Wall Street banks 'almost impossible'

Ex-Federal Reserve chief Paul Volcker says breaking up Wall Street banks 'almost impossible'

Paul Volcker, the former head of the Federal Reserve and a driving force behind financial reform in the US, has said that the task of splitting up Wall Street banks now seems "almost impossible".

Paul Volcker doubts banks can be made small enough to fail without impact on the financial system. 

By Richard Blackden, US Business Editor 2:13PM BST 11 Apr 2011

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"I don't like these banks being as big as they are," Mr Volcker told a conference at Bretton Woods in New Hampshire on Sunday night. But "to break them up to the point where the remaining units would be small enough so you wouldn't worry about their failure seems almost impossible," he said.

The concern about the effectiveness of the reform of Wall Street since the crisis from Mr Volcker, who was chairman of the Fed for almost a decade from 1979 and, more recently, an adviser to President Barack Obama, comes as the Independent Banking Commission (ICB) today delivered its report on the future structure of British banks.

Regulators in the world's financial capitals are wrestling with how to make the financial system safer without prompting banks to leave for jurisdictions where regulation is lighter.

The former Fed chairman's concern over the failure to protect taxpayers and the wider economy from the potential failure of large banks was echoed by George Soros, the billionaire financier and philanthropist.

"I certainly consider they haven't addressed the problem correctly," Mr Soros said. "The whole issue of living wills and resolution authorities is not convincing."

While the UK government has until September to consider the recommendations from today's report from the ICB, US regulators have until July to turn last year's financial reform act known as Dodd-Frank into actual rules for the financial services industry.

Mr Soros said that authorities had not produced tough enough regulation to ensure that there won't be a need for governments to exercise the implicit guarantee that they would again bail out the financial system in a future crisis.

Mr Volcker and Mr Soros were among about 400 people who gathered over the weekend in Bretton Woods, where the monetary system that dominated in the 30 years after World War Two was created in July 1944, to discuss how economic thinking has and should respond to the most recent financial crisis.

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