07 August 2012

Iceland Gets it Right, Part XXVII

Now Iceland is separating its commercial and its investment banks:
Iceland was brought to the brink of bankruptcy when its biggest banks failed four years ago. Now, the site of the world’s most spectacular financial collapse is becoming a pioneer in banking reform.

“We’ve been burned by this and that’s why we have to look very closely at what we need to do to prevent it happening again,” Economy MinisterSteingrimur J. Sigfusson said in an interview. “Icelanders are more interested in taking greater steps than small steps when it comes to regulating banking.”

His party, the junior member in Prime Minister Johanna Sigurdardottir’s coalition, has submitted a motion to parliament to stop banks using state-backed deposits to finance risky investments. The move puts Iceland on course to become the first western nation since the global financial crisis hit five years ago to force banking conglomerates to split their business.

It’s a proposal that’s gaining traction elsewhere. Even Sanford “Sandy” Weill, whose 1998 creation of New York-based Citigroup Inc. (C) triggered the Gramm-Leach-Bliley Act that paved the way for financial behemoths, now says investment banks should be separated from deposit-taking banks. Opponents including JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon say diverse businesses are needed to spread risk across divisions and stay competitive.
Gee, Glass Steagall was a good idea.

There is a shocker.

They appear to be the only government in the world that has had the fortitude and the foresight to actually learn from their own financial disaster.

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