There are reports that the UK independent commission reviewing the banking system is now considering not only the splitting up of banks but also the separation of retail and investment banking – the latter of which we think is a great idea!

As a consumer when you put money in a deposit account you get a modest rate of interest in return for your low risk deposit, and when you put money into an investment scheme you potentially get  a high rate of interest and with it much more risk.  But here is the oddity, the banks can take your low interest deposit money and then invest that money at higher risk, they make increased profit on the margin, and if it goes wrong you potentially lose your deposit or the tax payer ends up paying compensation.  Surely this is wrong and the banking system has to be changed, low risk deposit accounts should be just that, low risk.

Of course this example is an over simplification, but it highlights the risks the ordinary deposit account holders take, along with the tax payer as guarantor, for any adverse risky investment decisions taken by the “investment arm” of a bank.

Lets hope the bank commission comes up with a solution that protects the consumer and tax payer, but at the same time does not cause the banks to relocate overseas … whatever action is taken needs to have an international dimension to ensure there is a level playing field.