It seems that the nationalised UK banks are due to be broken up in response to a perceived lack of competition. This is a sensible move, and could also have a further benefit: it could reduce the number of financial organisations that are “too big to fail”. This is important, as it will limit the need for governments to get involved if banks are failing in future – other banks might be encouraged to absorb smaller banks or parts of them.
However, is anti-competition regulation the best way of effecting this change? An alternative approach is to impose additional capital requirements on larger firms, to provide a disincentive to the creation of large organisations. Such rules would need to be internationally imposed to avoid arbitrage between regions, but it perhaps creates a neater, structural approach to achieve the same ends in the future.
