Over at openEconomy, Peter Johnson has an interesting post on recent proposals that regulators partition the banks. Here is how he begins:

The gamekeepers have turned poacher. Both Alan Greenspan and now Mervyn King have called for the composite banks to be split up, separating the ‘routine’ business of taking customer deposits and executing payments from everything else that banks currently do, from mortgage, commercial and credit card lending to investment banking and proprietary trading.

Both men focused on the moral hazard that pervades the banking system today and that has so far not been addressed by the G20 or any individual government: when an institution becomes so important that it cannot be allowed to fail, that implicit state guarantee removes any incentive – other than a purely moral one – to behave prudently. If the banks didn’t already know that the taxpayer would insure their losses, they do now. None of the new regulations proposed to require banks to hold more capital, change their remuneration packages and so on get anywhere near tackling this issue. And unless it is tackled the banks will simply carry on as before and we’ll all end up insuring them as before.

If you're interested, I recommend you read the whole thing...