Size does matter to the G20 finance ministers. We know this in relation to the extent of the recovery. Some feel recovery has bedded down sufficiently to allow talk of ‘exit strategies’ from the extraordinary stimulus seen around the world.
Others, including the chancellor, fear that “the biggest single risk to recovery is that people think the job is done“.
We also know that quantum matters in relation to our banks, because almost a year ago in Washington, an unprecedented meeting of 20 world leaders decided that 30 of the world’s largest financial institutions would not be allowed to fail.
In the aftermath of the Lehman calamity it was a sensible piece of global financial solidarity, designed to inject much-needed confidence.
One year on, with the most tangible effect of this promise is that we are not in a second great depression. The second most tangible effect is that some of those same banks are coining in huge profits at almost no risk.
So there are two key areas for a hugely important meeting of the world’s 20 most important finance ministers at the Treasury tomorrow – the banks and the boost.
I have just returned from interviewing Lord Turner, the Chairman of the FSA. He expressed some concern that it was ‘dangerous’ to mix up the role of regulator and industry promoter. He seemed strongly to point towards ‘a tax on size’ to deal with banks that were too big to fail.
On bonuses, he pointed to the need for politicians to decide on reining in their size. The FSA’s job, he says, was to take the financial stability risk out of bank pay packages, but that some banks were now making relatively large risk-free profits. More on Lord Turner to come later.
The real dilemma for our finance ministers is posed by Nouriel Roubini: “The sense of urgency to implement important regulatory reforms agreed during the last G20 meeting is receding.”
We have an absolutely stellar cast of figures discussing on air tonight including one economist now in the White House who pointed the finger squarely at the City of London. There’s a cracking live discussion too. Your questions are welcome as ever.
Lord Turner seems to agree that there is a short window of opportunity.
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Lord Turner (no relation, so far as I know) is right. There is a very short window of opportunity.
As I said on Twitter yesterday, I think the Banks have got their priorities wrong. They should be focussing on the customers needs, which are for stability, reliability and a good rate of return on investments – particularly as we’ve got a pensions crisis looming and we need to fend for ourselves more..
Bankers only seem to have been chasing growth so they can pay themselves fat salaries and huge bonuses and make thier CV’s look good.
Meanwhile, the returns on my investments, particularly my endowment policy are as low as it is possible to get…
The politicans at the G20 perpetuate and extend the biggest risk of all. Removing the risk of failure from the largest banks removes from management, shareholders and creditors the most important control over their risk taking. If banks fail the senior management lose their jobs, shareholders and bondholders some or all of their investment. The more often a bank fails and these penalities are imposed the more careful will bank management be and the tighter controls shareholders and bond holders will put on them. “Rescuing” Northern Rock and Bear Stearns were the worst decisions taken. Had they been allowed to fail and the market had meet out its punishment the rest of the industry would have moved smartly to reduce their risk.
Where polticians should be putting their attention is to the antiquated insolvency procedures that make bank liquidation a longer, more costly and much more risky process than it need be.
The market did not fail. It was prevented from working early enough and quickly enough by grandstanding politicians who seem not to have learned anything since King Canute. Hubris and incomptence squared not CDOs squared are killing the economy.
I have felt for a long time that what Robert D is saying has an element of truth, however not being a financial wiz I am not sure what the full implications of letting a bank fail entail….Perhaps somebody could give me a few scenarios of likely outcomes if a bank was allowed to fail.
Pulling big banks to peices would created instability, competition the man on the streest could not understand or have TIME to research and furthermore would create a plurality where many fail rather than a couple.
[...] Lagarde outlined a fairly robust approach to banker bonuses. ‘It better stop in months, it’s reprehensible and incomprehensible and goes against [...]
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