Subscribe to EIR Online


Call for Ending Europe’s ‘Universal Banking Model’

Aug. 3, 2016 (EIRNS)—Even former investment bankers are calling for Glass-Steagall and the end of the "universal banking system," as shown in an article in The Globalist, where Paul Goldschmidt calls for an end to Europe’s "Universal Banking Model." A former Goldman Sachs banker and European Commission mandarin, Goldschmidt, a Belgian, is now European Affairs chairman at the Thomas More Institute in Brussels and Paris.

He clearly states that the policy of low interest rates, quantitative easing, and the universal banking system is not only a failure, but a toxic mix. Furthermore, the EU policy of creating a large capital market to finance the real economy is not possible with a universal banking system. He writes:

"Universal banks must constantly choose between either intermediating between ’borrowers’ and ’depositors,’ while retaining the credit risk on its [sic] own books (i.e., commercial bank loans) or between ’issuers’ and ’investors’ where the credit risk is passed on to the latter (i.e., capital market funding).

"The potential for conflict is exacerbated when the ’issuer’ is also a ’borrower’ from the bank, or when the bank has an in-house ’asset management’ arm. This problem was already recognized in the U.S.A. after the crash of 1929 and the depression of the 1930s.

"It led to the separation of commercial and investment banking activities (Glass-Steagall Act) as well as specific legislation to protect investors (Securities and Exchange Act).

"This created the foundations on which the spectacular growth of the U.S. capital markets, as distinct from its [sic] commercial banking sector, was able to flourish. The separation created a sufficiently broad base for both sectors to operate profitably.

"It is also true that the United States deviated from its previously virtuous path under the progressive ’deregulation’ of U.S. markets initiated in the late 1970s, including the repeal of the Glass-Steagall Act (1999)."

Noting that

"more voices argue for re-imposing a version of Glass-Steagall," he concludes,

"Now is not the time to kowtow to the European banking lobby which continues to exert undue influence resulting from years of a cozy incestuous relationship with national governments....

"Doing away with the ’Universal Banking Model’ should be a key element in dealing with this explosive situation.

"We simply cannot afford yet another banking crisis. If one were to occur, it would put into jeopardy not only the financial sector, but would also have grave economic and social consequences capable of destabilizing the foundations of European democracy."

Back to top