I was hoping to get a blog done yesterday to discuss the ongoing crisis but didnt…with the news that the FSA chief has resigned due to the whistleblower comments of yesterday, I have more discuss!

In fact, rather than prattle on like so many currently do as to the why’s and wherefores, I’d like to offer another solution. Split the retail and investment banks completely…. Of course, it is likely that the investment bank is funded from the retail banking part of each Group, so whether this ever happened is open for debate. However, with banks running to the taxpayer tail between their legs, it’s about time the taxpayer demanded and got what they were after.

What is it the taxpayer wants you may ask? A secure and well run bank for starters. A return to the days when you could call in at your local branch and talk to someone who could make a decision. I recently walked into my local branch to get some old bank statements and was told I had to write off and I would be charged £30 for the pleasure! The fact that a printer was right next to my personal banker did not seem to help…

Bank customers also want a return to customer service as at least an equal to a bank’s other primary objective of making money (it is not keeping your money safe!). If a bank wishes to gamble with funds through its investment division it is quite entitled to, but not at the loss of security for its customer’s deposits. The only alternative can be that the two divisions are split, with tax payer money funding the retail bank only (and therefore its improved service) whilst the investment bank fights on it own to get itself out of the trouble it got itself into…..In this instance retail banking would not suffer.

Unfortunately this is not the case, and as a result retail banking will continue to suffer whilst the cash machine known as taxpayer funds are diverted into the investment division to prop it up (or retain the usual profit margins, commonly known as “re-capitalising”).

Businesses that are failing are left to die, as we all saw with Woolworths. Why shouldn’t that be the same for investment groups? Split the banks, nationalise the retail side until it improves, and let the investment division fight like we all have to…saying sorry to government this week is not, and should not, be enough!

As we like to do at Discover and Invest, let’s look for the solutions to our needs…

The Bank of England is likely to cut interest rates to an all time low today with an expected reduction of between 0.5% and 1%. Negative data from the Eurozone has weakened the Euro overnight and US private sector unemployment figures show a larger than expected rise for November.

Pound Sterling - UK Markets

Sterling is currently faring well against the US Dollar, trading at approximately 1.5 ahead of the Bank of England interest rate decision. Against the Euro the Pound is up to 1.11 as markets appear to be focusing on the long term impact of interest rate reductions.

The current base rate is 2% in the UK and a reduction will bring interest rates to the lowest level since the Bank was founded in 1694. This could provide some underlying support for Sterling as economic slowdown in the Eurozone appears to be gathering momentum. The Bank of England is seeking to find a balance between lowering interest rates to stimulate economic growth while at the same time preventing deflation. However with interest rates approaching zero, the Bank is testing the limits of monetary policy and may need to look to more unconventional measures to stimulate cash flow. Quantitative easing, a tactic used in Japan has been mooted as an option for the future. The Nationwide Building Survey announced yesterday house prices fell 15.9% in 2008 and the weak labour market is likely to keep the housing market under pressure. Industrial, manufacturing and producer price indices are due in the UK tomorrow.

US Dollar - US Markets

The US Dollar is largely unchanged against its major currency partners although is weaker against the Yen as investors continue to favour risk aversion internationally.

Private sector employment figures in the US showed 693 000 job losses in December, the highest amount in seven years. The Dollar weakened over 3 cents against the Pound in response to the news and continues to trade in the region of 1.5 despite the pending Bank of England interest rate decision. Friday brings the announcement of non-farm unemployment in the US and is expected to provide further evidence of recession in the US economy.

Euro - European Markets

The Euro is weaker against both the Dollar and Pound this morning as deflation continues to be a major worry of the ECB.

Swiss CPI has declined 0.5% at consumer level in December and jobless rates in Spain have hit 3.1 million. The EU unemployment rate rose to 7.8% in November, up from 7.7% the previous month. Today’s news also shows declining consumer confidence and GDP in the Eurozone heightening the possibility of interest rate cuts. Retail sales figures are due out tomorrow.

Other Currencies - Highlights

The Australian and Kiwi dollars weakened yesterday as unemployment figures in the US forced commodity prices to drop. This morning however, the Australian Dollar has gained 1.6% on Sterling and 2% on the US Dollar ahead of expected interest rate cuts making the high yielding currencies more attractive to investors.

The political situation in Gaza has seen risk aversion rise with the Yen gaining for the fourth consecutive day against the Euro. The Swiss Franc has also risen against the other European Currencies as the combination of economic and political turmoil causes investors to seek safe assets.