Andrew Haldane, BOE Director of Financial Stability, addresses the too-big-to-fail problem in a recent article and makes the point that reducing complexity would increase investor trust in the banking system and improve liquidity.
…….Today, the Volcker proposals in the US, the Vickers proposals in the UK and the Liikanen proposals in Europe envisage a similar unbundling of banking portfolios. Despite the alarm some have expressed, if implemented faithfully and simply such structural solutions ought to help solve the too-complex-to-price problem, to say nothing of too-big-to-fail. Alongside efforts to strengthen macro and micro-prudential regulation, these initiatives would help mobilise bank funding and lending, just when it is most needed for the economy.
We should go further unbundling banks | Andy Haldane | Bank of England (pdf).