The Association of Chartered Certified Accountants (ACCA) has come out in favour of dividing banks into retail and investment arms after the American model adopted in 1933. The so-called Glass-Steagall Act, adopted by the US Congress four years after the Wall Street crash, aimed to divert risk by separating companies that issue securities from those that engage in commercial lending. The act was repealed in 1999.

But in a new report, published on 4 January, the ACCA says that while a complete separation of investment from retail banking might be impossible, “an effective segmentation between the two activities must be the aim”. “Given the collapse of confidence in financial institutions, any measure which reassures consumers must be supported,” the report says.

The idea is being put forward to solve the ‘too big to fail’ problem and encourage healthy competition in the banking market.

The European Commission has already begun forcing banks to divest parts of their businesses in return for the trillions of euro of aid that governments have pumped into ailing institutions since last September. In October 2009, Competition Commissioner Neelie Kroes ordered Dutch giant ING to shed its insurance business, while in November the Royal Bank of Scotland, KBC and Lloyds TSB came up for restructuring. The Commission estimates that in the Netherlands, Belgium and Britain the top five banks make up 80% of the total market.

In its report, the ACCA also pushes for bank bonuses to be left to companies themselves to regulate. “Legislating on the issue of pay is something that should be undertaken with caution, since the law can prove to be too blunt an instrument,” the report says.

The report is available at www.europolitics.info > Search = 263781