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Blame bankers, not the model

One banker contrives a metaphor to defend the universal banking model. If you set two BMW 5 Series cars to race around a track and only one makes it back, that tells you that one of the drivers made a mistake, not that the BMW is a bad car. So don’t junk universal banking, through a forced separation into utility banking, comprising retail deposit-taking and commercial lending, away from trading in securities, just to punish the mistakes of poor chief executives who drove their banks into a wall in the reckless pursuit of profits in complex instruments that they didn’t understand, using leveraged proprietary risk-taking they couldn’t control.

That wasn’t a flaw in the model: it was human failure.

This is the argument now being taken to investors in the stocks of large universal banks that have survived the seizures in the financial system. JPMorgan, HSBC and Barclays made good profits in their investment banking divisions in the first quarter of 2009. These earnings will bolster the banks’ capacity to absorb losses on conventional credit card, overdraft and unsecured personal loans, as well as mortgages and commercial and industrial loans, as the recession plays out. Forget RBS, UBS and Citi.

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