‘Hockney-esque’ is how the City minister, Lord Myners last week described today’s government effort to reboot Britain’s banking system.
It’s a high-brow reference to the fact that today’s government proposals will be a mix of white and green paper. Many of the more radical decisions will be delayed for more consultation. Some angry taxpayers could argue that toilet paper is more appropriate.
What other industry would definitely cost the public tens of billions of pounds, and plausibly hundreds of billions of pounds in bailouts, yet have its role in the economy defended in the document meant to rein in their excesses?
At the very time that teachers and nurses are likely to face pay freezes, at least partly to help pay off the debt incurred by this bailout, the banking fraternity have begun to argue they really are worth the boom time bonuses.
Treasury insiders are adamant that this paper will herald a complete change of theology and philosophy. The FSA will be empowered for intrusive regulation. It will set its own regulatory perimeters.
So if a bank gets round heavy-duty regulation (so-called regulatory arbitrage) by launching bizzarely named off-balance sheet funds, the FSA can chase them. If banks inisist on rewarding traders and salesman on the basis of short term share price or short term bonuses, the FSA can punish them. And if banks grow beyond their station, the FSA would be able to get involved.
So what would the FSA’s weapon be? Banning banks acting in these ‘bad’ ways? No. Jailing miscreants? No. Breaking banks up? No. The weapon of choice will be raising the levels of capital that banks have to set aside for each of these “risky” activities. This should limit their ability to lend and their profitability.
But actually I think it’s even more subtle than that. The Treasury hope is that the mere threat of such action from the FSA would encourage a bank’s board to rein the excesses of their executives in the good times. A dynamic that almost completely failed over the past decade. You could call it “hard self-regulation”. I imagine many people will be unconvinced, particularly given the lack of details.
I would anticipate some action on derivatives, but Britain may not go as far as Europe in demanding that all of the famous bets on bond insurance (so-called credit default swaps).
This crisis was at its heart about complexity. The response is not going to be simple.
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The FSA is as corrupt as the rest of the financial system. There’ll be no implementation of any new rules, and even if there were, they’d be watered down.
The connections between all these people with regulating the financial system is a joke.
Britain has become the epitome of corruption, greed, sleeze, spin & down right arrogance because of these people.
The spectre of public sector employees paying the price for this bunch of theives beggars belief.
The enemies of British people during the second world war has been gradually replaced over the last 20 years, and is now the british government & corporate fat-cats.
The ignorant and damaging assault on credit default swaps (CDS) by the Europeans illustrates the problem. CDS are an essential instrument in the management of credit exposure and are the only means to offset credit risk. Limiting their use and liquidity would be truly moronic. That is one market that needs to be strengthened by the rapid creation of a clearing house (an independent central exchange that monitors participants’ risks far more efficiently than any regulator) rather than impeded.
The problem lies with the idiotic Brown regulation model. Give it all to a single authority, such as the Bank of England and separate commercial and retail banking from investment banking as used to be the case.
Also, insist that all bank leaders are fully liable partners rather than highly paid employees with no downside liability.
Surely we have already had investment banking separate from high-street banking in the past? But, surely that’s not the underlying problem as one can still cause chaos to an economy by irresponsible investment.
The fundamental problems appear to be the reward for short-term gains without regard to the long-term implications.
Surely investment banks should be concerned with investment which surely means holding onto investments for the long-term rather than selling short to make a quick profit.
Surely investment banks should be measured not on the amount of money they have made, but on how well their investments are doing?
Such an approach would hopefully mean the demise of the despised hedge funds and these dangerous private equity funds.
Will the Banks have another crises? YES.
Everytime you go into a bank they try to give you credit. These people behind the counter must be on commision. No lessons have been learnt, hope the Government doesnt rescue them again.
The banking culture is the same now as it was before.
[...] Lord Myners, the City minister, tells us in a BBC interview on File on 4 that a staggering 70 per cent of all share dealing is currently undertaken by these massive computer dealing systems that enable a trader to hold a trade for a nanosecond before selling. [...]
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