Banking Commission

Lloyds boss says UK banking sector 'competitive'

If Robert Peston is right then Sir John & his fellow commissioners are wasting their time!

The UK's banking sector is already "enormously competitive" and banks do not need breaking up, the boss of Lloyds Banking Group has said.

Eric Daniels, Lloyds' chief executive, added in his testimony before the Treasury Committee, that "concentration does not lead to lack of competition".

He said the "great majority" of Lloyds' customers were satisfied, and denied that banks overcharged customers ...

Responding to criticism from members of the Treasury Committee that four banks - Lloyds, Barclays, HSBC and RBS - have a 73% share of the UK current account market, Mr Daniels said this compared well with the international picture.

BBC NEWS  07 Dec 2010

Britain 'powerless' to break up banks

... the [Vickers] commission ... seems to me to be leaning towards a definitive, physical break-up of the mega-banks.

However it turns out that neither of these major structural changes to our banks would be easy to do - in fact they might be impossible - without a decision by the European Union to force such reforms on all European banks.

"The UK's ability to force major structural changes on its banks is very very limited," said a source close to government.

The reason is that under EU law, any EU authorised bank has the right to set up a branch anywhere in the EU.

Which means, for example, that if Barclays did not wish to be broken up, it could move its head office to Luxembourg (for example) and then operate the whole of its retail banking and investment banking operations in the UK, as normal, in the form of a "branch" of the Luxembourg-based bank ...

Robert Peston  07 Dec 2010    Alternatives to Fractional Reserve Banking

RBS taken to brink of collapse by 'bad' decisions, FSA concludes

• Regulator will not take action against Sir Fred Goodwin
• PwC inquiry into Royal Bank of Scotland will not be published
• FSA reviews of HBOS and Bradford & Bingley ongoing ...

The FSA insisted that it could not publish the PwC review as the information obtained remained confidential under the Financial Services and Markets Act ...

The FSA said: "The review confirmed that RBS made a series of bad decisions in the years immediately before the financial crisis, most significantly the acquisition of ABN Amro and the decision to aggressively expand its investment banking business.

"However, the review concluded that these bad decisions were not the result of a lack of integrity by any individual and we did not identify any instances of fraud or dishonest activity by RBS senior individuals or a failure of governance on the part of the board."

As a result it would not take enforcement action against the firm or any individuals but warned that if any former directors reapplied to work in the City they could find their applications being barred or restricted to certain activities ...

Guardian  02 Dec 2010    Alternatives to FRB

City bankers should learn lessons of Sir Fred's hollow victory

UK banks borrowed more than £640bn from US Federal Reserve

Sir Fred Goodwin in the clear

Full reserve banking

The think tank ... new economics foundation ... campaign group Positive Money and Professor Richard Werner from University of Southampton have put forward a proposal for a system of full-reserve banking, which is very similar to Carswell and Baker’s bill.

Earlier this month they submitted this idea to Independent Commission on Banking (ICB), which was set up in June 2010 to investigate how the banking system can be made more stable and competitive ...

... it looks like the unlikely union of leftwing, rightwing, green and Muslim interests is set to continue.

This is vital, argues Curtis, if the banking lobby is to be countered.

“There’s no interest group working on the other side of the banks,” he says.

“Banks are obviously going to lobby for whichever system enables them to make the highest amount of profit.

"There’s nobody representing society’s point of view so that’s what we’re here for, to make the best monetary system for people who use the money.”

openDemocracy  30 Nov 2010    Alternatives to FRB

Positive Money

Carswell’s Financial Services Bill

Carswell and Baker's Bank Bill - Ultimately Pointless

Sir John Vickers calls Lloyds takeover of HBOS 'a mistake'

Comment by chair of government commission probing whether to break up banks is an embarrassment, say City observers ...

[Sir John Vickers'] views were expressed in a paper prepared for the Bank of International Settlement, the central bankers' bank, in May.

Ministers, who will ultimately decide whether to break up banks, are understood not have been aware of the paper until it was published.

In the paper, Vickers wrote:

"It would appear to have been a mistake to waive normal merger law to address the HBOS problem once it was clear, as it was by early October 2008, that a systemic solvency problem existed.

"Relaxation of competition law was not a good way to help financial stability in this case, and as the subsequent problems of [Lloyds] have shown, it may have worsened it."

He said that nationalising HBOS instead of allowing Lloyds to take over the ailing lender "would have had important economic advantages" ...

Guardian  26 Nov 2010    

Shareholders get the bill for Lloyds shotgun wedding

Vince Cable 'not persuaded' banks have got message on bonuses

Vince Cable is yet to be convinced that bankers have "got the message" about big bonuses despite their attempts to show restraint ...

The banks are hoping that by showing restraint they can avoid extra taxes on their profits and bonus pools but sources close to the talks concede the banks may not be offering enough to appease the government.

The banks are also considering contributing funds to David Cameron's "big society" bank and make pledges to lend to businesses – again in an effort to head off government policies.

Osborne has currently stepped back from plans, initiated by the Labour government, to demand that bankers disclose how many of their employees earn more than £500,000 a year ...

Osborne is now writing to Europe to try to reach agreement on such disclosure, which goes further than European rules, which only require the overall bonus pot to be published ...

Guardian  26 Nov 2010    Fractional Reserve Banking

Banks hope to buy off curbs on bonuses

Bankers' pay: coalition split over reform

Coalition: Our Programme for Government

RBS falls back into the red

Spare a thought for the 'star traders' p155ed-off with RBS's bonuses

The bank's lending to large and small businesses has reached £30.9 billion since March and RBS confirmed it was on track to meet the Government-set target for £50 billion gross lending in the year to March 2011.

The bank's investment banking business had a tougher quarter, with more difficult conditions leaving revenues in Global Banking and Markets down by a fifth.

But in a move likely to stoke further anger over pay and bonuses within state-backed players, RBS revealed it increased its compensation ratio - staff costs as a percentage of revenues - in the GBM division to 40% in the third quarter.

This was higher than the 32% in the previous quarter and the 35% a year earlier.

RBS defended its decision to set aside more in investment banking pay in the face of falling revenues at GBM.

The group said it needed to pay competitive rates to retain staff as it continues to see departures of star traders at an "uncomfortable" pace ...

Independent  05 Nov 2010    Bonus Culture    Fractional Reserve Banking

RBS recovery on track despite £1.4bn loss

'Bonus buyouts' signal return of banks' confidence – and wealth

Headhunter reports sharp rise in poaching of star employees by buying out multi-year bonus packages upfront ...

Jonathan Nicholson, managing director at Astbury Marsden, said:

"Banks are now prepared to buy out 100% of a potential employee's shares or options they have locked up with their current employer."

Four-fifths of new recruitments now involve such bonus buyouts, compared with one in five a year ago.

A fifth of these bonuses are bought out by paying the new employee cash upfront, with the rest in the form of new employee shares and share options.

Astbury Marsden said that bonus buyouts have accelerated in the last month as banks try to poach their rivals' best earners before Christmas, when fewer people change jobs.

Deutsche Bank, which reported third quarter results today, said it had set aside €4.6bn (£4bn) in bonus pool for its corporate and investment bank over the first nine months, amounting to €285,000 per employee.

Nicholson added: "Banks and fund managers are confident about next year and they still want to add to their teams. Within reason, they are willing to pay for the talent.

"A successful trader or banker will now no longer move unless their entire share bonus scheme is bought out.

"A year ago they would have been more flexible – now they don't want to forgo a penny." ...

Guardian  27 Oct 2010    Corporate Sociopathy    Fractional Reserve Banking    Wealth Log

CBI leader calls for bank bonuses 'ceasefire' as cutbacks bite

Richard Lambert, the director-general of the Confederation of British Industry (CBI), called on banks yesterday to agree a "global ceasefire" on bonuses, warning that the impact of a string of multimillion-dollar "transfers" of star traders could be "toxic in the extreme" ...

Mr Lambert said:

"The political costs of failing to agree a global ceasefire are likely to be substantial.

"It won't be enough to say that without a level playing field around the world, nothing can be done.

"Carrying on with business as normal would seem arrogant and out of touch, and further erode public trust."

Mr Lambert's remarks came just days after a report by the Centre for Economics and Business Research (CEBR) forecast that City institutions planned to spend £7bn on bonuses this year, which helped to reignite the furore over the issue and led to fresh accusations of banks indulging in "casino capitalism" ...

Independent  12 Oct 2010    Bonus Culture    Fractional Reserve Banking    We're all in it together

Boris Johnson warns banks on bonuses

European bonus rules threaten City

European rules on the way banks can pay their staff present the City of London with its biggest regulatory challenge since the financial crisis ...

Under the CEBS guidelines effected finance professionals, could end up receiving just 10pc of their annual bonus in a given year after UK tax and deferment is taken into account.

The rules will also cap the multiple of salary targeted institutions are allowed to pay as an annual bonus, as well as forcing them to reveal more information than ever before on how their compensation bill breaks down by employee groups.

With a 30-day consultation period ahead of their implementation at the start of next year, banks and their lawyers are racing to present a response to proposals they see as potentially highly damaging to their businesses ...

Here are the Committee of European Banking Supervisors' prosposals

• Curbs to apply in all parts of company inside/outside EU

• Bans non-performance related golden parachutes

• Up-front bonuses subject to claw back

• Big bonuses should not be awarded purely in up-front cash.

• Should be an appropriate rate between base pay and bonuses.

• 40pc to 60pc of variable remuneration to be deferred for 3-5 years

• Governments must be repaid before bonuses paid.

• Contracts have to acknowledge regulations.

• Information on remuneration to be made available to shareholders.

• No multiple-year contracts.

• Staff can't hedge risk of bonuses being reduced.

Telegraph  09 Oct 2010    Fractional Reserve Banking

Bankers to flee after Europe pay squeeze?

European bonus rules 'will prompt exodus of banks'

EU unveils toughest yet clampdown ...

Banks may ask for more cash to plug £750bn funding gap, says thinktank

We are back to what The Guardian's Lary Elliott called 'Keynes Lite'.

This is a 'system' in which you have unregulated banking in boom times; and massive Keynesian-style bailouts when it all goes pear-shaped.

On no account can the system be reformed, since politicians look forward to high-profile jobs in banks when they lose power at the next election

The New Economics Foundation said the government needs to do more to address the borrowing requirements of the high-street banks, which still rely on funding from the Bank of England two years after the collapse of Lehman Brothers.

Many of the emergency funding schemes put in place during the crisis run out by the end of 2012, which means that banks need to find or replace £750bn of funding.

NEF calculates that the banks will need to raise £25bn a month – up from £12bn a month now – to plug the funding gap.

If they cannot, they may need more help from the government to keep operating ...

Andrew Simms, co-author and policy director at NEF, said that "for all the talk of learning lessons, the banks have been left largely untouched".

He added: "They appear no more transparent or accountable, and scant new regulation has been implemented to prevent a repeat of the crisis."

The report points out that although banks are being propped up by the taxpayer, lending has stagnated and interest rates on loans for businesses and households are in some instances higher than they were before the banking crisis.

NEF has previously published a manifesto for better banking in which it calls for a Post Office bank based on the existing post office network to be created and the setting up of a green investment bank to finance low carbon projects ...

Guardian  04 Oct 2010    Fractional Reserve Banking    What caused the credit crunch?

Hegel on Wall Street

Supernanny, Wall Street needs you

Banks may need new bailout

UK 'On Cusp Of Second Banking Failure'

Where did our money go?

Hegel on Wall Street

" ... regulation is the force of reason needed to undo the concoctions of fantasy."

What bankers do, Hegel is urging, is satisfy a function within a complex system that gives their actions functional significance.

Actions are elements of practices, and practices give individual actions their meaning. Without the game of basketball, there are just balls flying around with no purpose.

The rules of the game give the action of putting the ball through the net the meaning of scoring, where scoring is something one does for the sake of the team ...

The function of Wall Street is the allocation of capital; as Adam Smith instructed, Wall Street’s task is to get capital to wherever it will do the most good in the production of goods and services.

When the financial sector is fulfilling its function well, an individual banker succeeds only if he is routinely successful in placing investors’ capital in businesses that over time are profitable.

Time matters here because what must be promoted is the practice’s capacity to reproduce itself.

In this simplified scenario, Wall Street profits are tightly bound to the extra wealth produced by successful industries.

Every account of the financial crisis points to a terrifying series of structures that all have the same character: the profit-driven actions of the financial sector became increasingly detached from their function of supporting and advancing the growth of capital ...

A system of compensation that provides huge bonuses based on short-term profits necessarily ignores the long-term interests of investors.

As does a system that ignores the creditworthiness of borrowers; allows credit rating agencies to be paid by those they rate and encourages the creation of highly complex and deceptive financial instruments.

In each case, the actions — and profits — of the financial agents became insulated from both the interests of investors and the wealth-creating needs of industry ...

What market regulations should prohibit are practices in which profit-taking can routinely occur without wealth creation; wealth creation is the world-interest that makes bankers’ self-interest possible.

Arguments that market discipline, the discipline of self-interest, should allow Wall Street to remain self-regulating only reveal that Wall Street, as Hegel would say, “simply does not know what it is doing.”

NYT  03 Oct 2010    Fractional Reserve Banking    What caused the credit crunch?

Bank functions should be split, Lord May advises Bank of England

May, an expert in infectious diseases who is a professor at Oxford University and Imperial College, is one of a team of scientists brought together by the Bank chairman Mervyn King since 2006 to try to apply theoretical studies to the question of how best to protect the banking system.

He has written a scientific paper on the topic with Andrew Haldane, the executive director of financial stability at the Bank of England, which is now being considered for publication by the science journal Nature.

May said that the failures of large banks can put the entire system at risk just as the failure of key internet sites, or HIV-infected people who have sex with multiple partners, can damage their respective networks.

"There's a paradox that actions that might make sense for each bank individually might not make sense when they're all together at all," May told the Guardian.

A key example of those actions, he said, is where a bank has both a retail and investment arm.

"The studies from other fields show that if you want to maximise the vulnerability of the system, then you mix those two together. It's like the spread of infectious disease," May said.

"And if you look at the models, it's not surprising that you find that the system would be more stable if the banks held bigger reserves in boom times, and smaller ones in lean times."

Guardian  27 Sept 2010    Complexity & Collapse    Fractional Reserve Banking

Why the financial system is like an ecosystem

The International Finance Multiplier

To split or not to split? What is the future for Britain's banks?

Business Secretary Vince Cable wants the banks to separate their retail and investments sides, but the industry is not convinced that would be a sensible move ...

It may be called the Independent Commission on Banking but its boss and his four henchmen spent most of their first public outing on Friday defending their autonomy ...

Sir John has form with the banks. When he headed the Office of Fair Trading, he blocked Lloyds' proposed merger with Abbey National ...

Wolf, the Financial Times's chief economic commentator, concedes that separation would pose practical problems, but this year wrote:

"Volcker's axe is not enough to cut banks to size."

Spottiswoode, a former gas regulator, sat beside Cable on the Future of Banking Commission chaired by Tory MP David Davis.

In June, this commission concluded:

"Breaking up the banks would be a major recasting of the global financial system but it would eliminate conflicts of interest and contribute to a safer system by reducing the scale of individual banks."

Taylor, a former Barclays chairman, told the Davis inquiry that universal banks – those combining investment and retail banking – must be regulated carefully and hard.

"After I left Barclays, I said the investment banking activities of a universal bank were at all times parasitic on the retail bank balance sheet. I used the word carefully and I would not change it now."

Winters, the fourth member of the team, is the former co-head of investment banking at Wall Street's JP Morgan and may be alone in defending the status quo ...

Independent  26 Sept 2010    

The Future of Banking Commission

Taxpayers should not have to bankroll another meltdown

... Britain does matter hugely as an international banking centre, for more international banking business is conducted through London than any other place in the world.

Banking is Britain's largest export industry.

But there is a Wimbledon effect: the City provides the grass on which competitors from other countries come to play.

Banking regulation must change here and elsewhere. It is intolerable for taxpayers to have to carry the risks of another global banking meltdown.

There are two key issues here.

Should commercial and investment banking be split? And how should countries resolve the "too big to fail" conundrum?

Independent  25 Sept 2010    Fractional Reserve Banking

HSBC attacked over Geoghegan severance deal

HSBC's Geoghegan to get £17m after losing out on chairman role

Banking commission promises to ask 'hard questions'

Commission considering separating investment banks from high street businesses ...

The issues paper, which is open for consultation until November, sets out six main options for overhauling the ways banks are structured to reform the system, ranging from a radical Glass-Steagall style overhaul of the system or merely proceeding with work that is already under way. They are:

• Separation of retail and investment banking – the crudest and arguably the most radical options

• Narrow banking and limited purpose banking

• Limits on proprietary trading and investing – an approach similar to the one being adopted in the US by the Volcker rule

• Structural issues such as including living wills and resolution schemes, subjects that are already being considered by the banks in consultation with the Financial Services Authority

• Contingent capital that can be dipped into in emergencies

• Structure-related surcharges, some of which are already being considered by regulators to force the world's biggest banks to hold extra capital ...

ChrisWoods 24 September 2010 9:34AM

They will take a year then report back with the conclusion that the banks shouldnt be split but that they need more money to function and restore their balance sheet so they can survive another hit.

Perhaps the more interesting questions are

1) How will the banking system get itself off state support any time soon?

2) When will RBS become solvent?

3) How will banks intend to get back into profitability without killing the rest of the economy in doing so?

4) Where has all the competition gone?

5) Why is it the banks have put no solutions forward to cure the problems so aptly shown in the bank crisis of the last few years?

6) Why do the bank sector employees think they are worth some 50% of all profits made in payouts to their staff?

7) When are you going to pay back all the money that the taxpayer has put in through loans and guarantees?

socialistMike 24 September 2010 11:03AM

We need a People's Bank so we can avoid dealing with these corrupt and reckless chancers.

The politicians favourite slogan is 'choice' - we must have it in health and education, but not banking. There the only choice is to put your money in a more or less corrupt and criminal organistion run by anti-social shysters.

The nationalised banks mustn't be put back in the private sector - we need the profits for our funds, but as soon as we have got them back on their feet - at the cost of tens of thousands of jobs and countless amounts of public money, they will be 'returned' to the private sector to make sure that no profit accrues to the public benefit.

They should be democratised and the peoples ownership of them formalised and structured so we can have our say in its management and running.

Sadly, however, governments don't care about democracy or our lives - they care about getting the money machine back on its feet so that unearned wealth can continue to flow into the offshore bank accounts of the rich.

Guardian  24 Sept 2010    Fractional Reserve Banking

Euro Area Fiscal Policies and the Crisis

Cameron's 'day of reckoning' for bankers dismissed as damp squib

Clone Eric Daniels? One's enough

A poor deal has been well executed.

Lloyds has returned to profitability far earlier than most outsiders expected. And confidence in Daniels as a nuts-and-bolts operator was sufficiently high for shareholders to support a £13.5bn rights issue a year ago.

That capital-raising was critical in ensuring that Lloyds didn't get whacked harder by EU rules on state aid.

Those achievements have allowed Daniels to claim, as Blank did, that the HBOS deal will eventually be applauded.

That argument is certainly now plausible given the size of the profits – £3.7bn this year, say the analysts – but let's see if Lloyds survives the fallout from the Banking Commission.

By rights, Lloyds Banking Group should not be allowed to exist.

It has roughly 25% of the current accounts in this country, a share probably unequalled in UK banking history.

It secured that position because the competition rules were ripped up to enable the HBOS takeover to proceed.

The commissioners would be popular – certainly with small businesses – if they recommended a break-up.

For a chancellor keen to be seen doing something about banks, the pressure would be hard to resist.

Daniels will spend his last year as chief executive trying to prevent such an outcome ...

Guardian  20 Sept 2010    Fractional Reserve Banking

Cable warns banks over 'outrageous' bonuses

Eric Daniels vows to prevent Lloyds breakup

Bank bosses called to account as breakup inquiry gets under way

Shares rise over delay in changes to banks' capital

Boosted by sharp gains in banking stocks, the FTSE 100 traded nearly 50 points higher at 5550.20 in early trading, a gain of 0.81%.

The STOXX Europe 600 banking index climbed 1.8% and the pan-European FTSEurofirst 300 index hit its highest level since last April, up 0.8% at 1089.22 points.

Under the new Basel III rules, banks will be forced to more than triple the amount of top-quality capital they must hold in reserve to prevent a repeat of the financial crisis, following a deal hammered out last night in Switzerland.

Banks will have to increase their core tier-one capital ratio to 4.5% under the plan.

In addition, they will have to carry a further "counter-cyclical" capital conservation buffer of 2.5%.

Any bank that fails to meet the new requirements is expected to be banned from paying dividends to shareholders until it has improved its balance sheet.

But to ease the burden, regulators gave the banks transition periods to comply.

These periods, extending in some cases to January 2019 or later, are longer than many analysts had expected.

"Global banks will like the news that they have been given an extended period [to comply with the rules] and the fact that they're not going to have to rush to raise capital," said Chris Weston at IG Markets ...

Guardian  13 Sept 2010    

Basel III rules will force banks to hold more capital

Are new bank capital rules tough enough?

Global bankers agree new capital reserve rules

Banks must act if they don't want to hit the buffers

City lobbies George Osborne to save banks from break-up

Banking rules to split retail and investment divisions 'would drive banks abroad' ...

A senior City source added tonight that the appointment of Diamond undermined the argument put forward by banks that they planned to be more conservative and limit their risks.

But Tim Linacre, boss of stockbroker Panmure Gordon, said:

"There is a real danger that big 'universal' banks such as Barclays could shift their headquarters overseas to escape moves to re-work their activities."

This month, Stuart Gulliver, investment banking chief of HSBC said that the commission's findings would have "implications for where we may choose to headquarter our institution."

Linacre said: "Because Diamond is an American with less emotional attachment to the UK, he will be more able to look dispassionately at what is in the best interests of his shareholders. Arguably, as banks have become more international, there is less of an imperative for them to be headquartered in London."

Analysts say splitting up the banks could be costly as investment banks will almost certainly be required to hold more capital than their high street counterparts ...

loveletter
9 September 2010 12:48AM

Off-shoring a bank would mean the debts go with it. Who will want to underwrite its likely losses? Jersey? Bermuda? Cayman? Where is this mythical off-shore? It is a small matter of changing the law surely to caste these colonial protectorates off and the bank and its debts. This is all empty threats ...

Guardian  08 Sept 2010

Two years on and all we get from the banks is two fingers

If anyone had any remaining doubts about the resurgence of the City's wheeler dealers, today's appointment of Bob Diamond to lead Barclays should remove them.

As another banker – HSBC's Stephen Green – prepares to join the government as trade minister, Barclays has elevated its arch dealmaker to succeed John Varley next March.

HSBC is also believed to be grooming one of its investment bankers, Stuart Gulliver, to take the helm.

It is a far cry from two years ago when investment bankers were reluctant to leave home for fear of being heckled in the street.

It was left to the GMB union to try and stoke the fires of public anger, calling Diamond's appointment "insulting and divisive" ...

... the structure of the industry remains substantially unaltered from the setup that caused the last financial crisis.

Barclays is proud of the fact that it remained outside the government's bailout programme, but the elevation of Diamond appears to draw a line under the idea of co-operating with a government that wants to cut the banks down to size ...

Guardian  07 Sept 2010    Fractional Reserve Banking    

Bob Diamond in US court to defend Lehman Brothers deal

Barclays appointment highlights 'casino' banking fears

Business secretary says Barclays' appointment of Bob Diamond illustrates dangers of having retail banks with massively profitable investment arms attached to them ...

Cable ... told the BBC: "It isn't my job to appoint the head of a private bank. But what this appointment illustrates is the wider policy question about how banks can be made safe, and we are worried about this combination of the casinos and the traditional banks.

"I think it does illustrate the wisdom of the government's decision to set up this banking commission to look at the structure of banks ... The whole point about that work is the government's worry about the future stability of banks where you have this combination of traditional banking being tied up with investment banks, what people have called 'casinos'."

Sources close to Cable said he had expressed concern last night that the decision to install Diamond ... showed the banking sector was not taking the threat of break-up seriously ...

The 59-year-old American ... was described as the "unacceptable face of banking" by Cable's Labour predecessor, Lord Mandelson ...

Guardian  08 Sept 2010

Diamond joins the investment bankers running Britain's banks

It is almost two years to the day since the British Government, via the Financial Services Authority, effectively vetoed Barclays Bank's plan to buy Lehman Brothers, condemning the failing American investment bank to collapse.

And although Bob Diamond, the Barclays man championing the takeover, was furious, he has much to be grateful for.

Had Barclays been saddled with Lehman in its entirety, its ability to ride out the rest of the financial crisis would have been in question.

Instead, it bought Lehman's choicest assets at a knock-down price and Mr Diamond came up smelling of roses ...

Independent  08 Sept 2010    Boris warns bankers    Fractional Reserve Banking    

Barclays deal makers and paper shufflers take over

Despite Reform, Banks Have Room for Risky Deals

... several trades that were made on behalf of clients went bad for the banks even as the new rules were being debated in Washington this year.

JPMorgan Chase and Goldman Sachs, for example, each lost more than $100 million on transactions handled for customers in the period from April to July.

Blowups like these, only larger, contributed to the financial crisis and forced the federal government to spend billions of dollars to bail out financial institutions.

Yet analysts are quick to point out that many of those transactions were handled by the banks, ostensibly to serve clients.

“You can use client activity as a cover for basically anything you are doing,” said Janet Tavakoli, who runs her own structured finance consulting firm. “It’s very problematic that losses like this are showing up. It’s a prime example of what the financial reform bill doesn’t address.” ...

Though these trades were made on behalf of clients, they subjected the banks to the kind of risk that Congress sought to curtail when it devised the Volcker Rule, which banned banks from speculating with their own money.

That practice is known as proprietary trading ...

NYT  25 Aug 2010    Fractional Reserve Banking

Proprietary trading

US banks off the hook until 2022

Volcker Rule

Mergers and acquisitions mania disrupts bankers' summer breaks

Mergers and acquisitions this year represent about 35% of global investment banking fees, still below a 10-year average of 38%, according to Guardian calculations based on ThomsonReuters data.

The sector peaked in 2008, when M&A accounted for 48% of all investment banking fees.

Bankers usually charge between 1% and 3% of the value of deal worth less than $500m, while the fee is down to between 0.8% and 1% for deals between $500m and $1bn, and to less than 1% for the biggest transactions, worth more than $1bn.

Banks are also turning back to corporate clients after courting national governments as one of their main sources of income last year.

Multibillion-pound sovereign bond issues by high-deficit countries, such as Britain, the US, Greece and Spain proved juicy earners over the past 12 months.

As countries have already bailed out banks and rescued the near-collapsed financial system, government bond deals have almost halved this year to $851bn, down from a whopping $1.4tn over the same period last year, the data shows.

Banks prefer corporate clients to high-profile government deals, which often bring more prestige than real income.

More focus on companies and less attention to governments and distressed deals has lifted investment banking fees by 53% in Britain, the data shows ...

Guardian  20 Aug 2010

Fractional Reserve Banking    Is capitalism the only game in town?    Rebalancing the Economy

Merger mania predicted as cash-rich firms stalk takeover targets

Mergers and Acquisitions

Banks customers still paying for mistakes by investment bankers

Bruce Packard at Seymour Pierce said that, according to "the bankers' paradox", those most in need of assistance are the least likely to be given help.

"With £75bn of cumulative investment banking losses – five times higher than UK retail banking losses – we are rather surprised that UK banks haven't given their markets divisions the cold shoulder."

He added: "Investment bankers, traders, markets divisions shouldn't be cross-subsidised by the retail bank and therefore indirectly by taxpayers."

He has worked out that investment banking losses, including impairments and writedowns, over the last two and a half years at Barclays, Royal Bank of Scotland and Lloyds Banking Group amount to £74bn, against £14.7bn in retail banking losses.

Lloyds and RBS are part-owned by the government.

If the goodwill writedowns and "negative fair value adjustments" on acquisitions – RBS's ABN Amro purchase and Lloyds's HBOS takeover – are added, the losses rise to £118bn.

Barclays Capital's losses for 2008, 2009 and the first half of 2010 amount to £16bn, against nearly £2bn in the bank's retail banking division.

Lloyds has run up cumulative losses of £41bn in wholesale versus £9.3bn in retail banking while RBS has racked up investment banking losses of £61bn and retail banking losses of only £3.4bn ...

Packard said he is concerned that some of Britain's big banks are recouping investment banking losses by expanding margins to retail and small business customers ...

Guardian  19 Aug 2010    Fractional Reserve Banking    Is capitalism the only game in town?

Businesses 'paying more' to borrow than last year

High cost of borrowing may be the legacy of the credit crunch

Interest rates may have fallen but households are finding the cost of borrowing is rising – and may remain high ...

The decade of easy money came to an abrupt halt in August 2007 but what has emerged since is a divided Britain in which young adults are paying the price of the credit crunch while their parents have landed a get-out-of-jail-free card.

Existing borrowers are enjoying the windfall of a lower Bank of England base rate, while new borrowers are either locked out of the market or face permanently higher loan costs ...

The long-term implications are worrying. Well-off parents will be able to access the equity in their homes and use the money to help their offspring put down a deposit on their first home. But the children of low-income families may find themselves permanently excluded.

"What's happening with deposits will tend to accelerate divides in society," adds [Ray Boulger, of mortgage brokers John Charcol] ...

Guardian  09 Aug 2010    Fractional Reserve Banking    Inequality    Is capitalism the only game in town?

Cable fears banks are still 'structurally dangerous'

Barclays weighs 'option' of leaving UK amid calls to break up big banks

It's still the casino that dominates the profits ...

• £3.9bn profits almost all due to US investment arm
• 'Back to bonuses as usual', says Lib Dem spokesman
• Datablog: UK banks bounce back ...

After it emerged that Barclays' investment banking arm had generated almost 90% of the bank's larger-than-expected £3.9bn first-half profits, its chief executive, John Varley, refused to give a clear answer when asked if the bank might move overseas if forced to break up by the commission ...

The investment banking arm, Barclays Capital, amassed a £3bn pay and bonus pot for its 25,000 staff, and the Liberal Democrats used the division's contribution to the 44% rise in profits to call for banks to get "back to basic, low-risk banking" ...

ChrisWoods
5 Aug 2010, 9:49AM

Thanks to payouts by AIG courtesy of the US taxpayer, Bobs empire made a profit last year. This year they booked a large `accounting` profit thanks to their uber cheap deal of Lehman Brothers, which if you didnt know, L.B shareholders are trying to drag Bob through the courts for.

If Barclays wants to trade on its own account then fine, but doesnt have any investors compensation cover. Nor does it have any state guarantees for inter bank lending, doesnt receive any money via the special liquidity scheme or any other support from the taxpayer.

And yep, the `casino` section should be separated from the retail side, since this is depositors money they use to trade with. Barclays is way too big to fail, we all know that.

If Bob wants his own trading book, he and his uber employees should use their own money & shares as security as a loan to trade with, then they take all the profit and all the loss with no hope of a bailout. Rather like Lehman.

Just to mention to Varley and Bob, if Barclays really does operate as a unified bank, then why is it that the bonus pool from the I.B side wont reach the retail staff?

And why is it that the bonus pool isnt used to shore up the banks capital?

Is it not just the case that Bob diamond likes to use depositors money to trade with risk free?

nutsch
5 Aug 2010, 12:08PM

Anyone else find it all a bit odd that we get (say) zero % on our savings and pay (say) 5 % on our loans and 20 % on our credit cards?

Is there not room for an efficient mutual retail banking operation that gives 2% on savings and takes 3.5% on loans? Without out all the casino/ cartel financial alchemy?

psonscfc
5 Aug 2010, 12:17PM

"The risk mitigation provided by our structure, which results from co-existent and mutually diversifying businesses, and from our own risk management techniques, lies behind our consistently profitable performance over the credit crisis. Since the crisis began in July 2007, the total pre-tax profits posted by Barclays amount to £25bn in aggregate," Varley said.

Completely ignoring the fact that Western Governments had bailed the whole sector out at the cost of hundreds of billions of pounds of tax payers money, with the tax payer continuing to under write the risk taken by these bloody greedy parasites.

"A broadly level playing field on international regulation is vital if a robust financial services industry can continue to thrive in the United Kingdom – it will only thrive if it can compete on broadly equal terms," he said.

Translation; we think we can stop governments from regulating us if we make it seem like to much hard work to get an international consensus. Any government thinking of going it alone will be intimidated by bankers threatening to pull as much of the business as possible out of said country. Democracy in action!

Forcing backs to hold too much capital could also be damaging the economy, he added. "If we try to have risk-free banks by creating new rules for capital, liquidity and funding which substantially constrain risk-taking, we will surely have banks that cannot perform their key role of facilitating economic activity," said Varley.

Translation; Forcing the banks only to lend what the have been given to invest will reduce the profitability of banking and reduce our bonuses. Please don't stop me from creating new money and taking most of the increased wealth of a growing economy. Without electronic counter fitting we will be forced to operate like a normal business and take a reasonable cut of the profits of the businesses we leach from.

The bank, unlike the bailed-out Lloyds Banking Group and Royal Bank of Scotland, is able to pay dividends. Varley said the interim dividend for the second quarter of 2010 was 1p, on top of the 1p paid for the first quarter. "I would expect our payout ratio to increase over time, though not to the 50% or so at which our policy operated before the onset of the credit crisis."

So your paying yourselves far more in bonuses than you pay out to the shareholders?

These bankers make me sick to the pit of my stomach. They have forgotten all to fast the fact that all of the money in the banking sector belongs to the tax payer through the bailouts. Barclay's may not have been directly bailed out (they just received billions in free money via "quantitative easing"), but they would have been dragged under with the rest if the tax payer had not stepped in and saved them from their own greed and stupidity.

The banks forgot long ago that their function is to provide financial transaction services and to redistribute excess wealth to parts of the economy in need. The fact that they "create" new money has rather gone to their heads. They now seem to think that they own the economy, which is not a million miles from the truth, as they own most of the means of production, most of our homes and will soon be the capital backers of most of our public services.

The parasite has out grown the organism and is killing it at an ever quicker rate. It should be impossible for a bank to make significant profits when the real economy is struggling to make ends meet, manufacturers are not making money, believe me most of us are working our arses off just to survive at the moment. All that banking's return to profitability shows is that they will take money out the economy no matter what the financial climate, with all the risks underwritten by the tax payer is it any bloody wonder?

Guardian  05 Aug 2010

RBS moves back to black

Stephen Hester, chief executive of the state-controlled bank, stressed that the move into profitability was largely due to accounting rules and that the underlying position for the bank over the first half was break-even.

The bank said its most representative figure was an attributable profit of £9m ...

... RBS is reliant on its investment bank, known as global banking and markets, which generated the bulk of the bank's profits.

On an operating basis, RBS made £1.6bn of profits in the first half, a swing of £5bn from the £3.4bn loss a year ago.

Some £2.5bn was generated by global banking and markets but profitability in this division was down from the £4.5bn made a year ago when markets were more volatile. Staff costs, which include bonuses, in the division were flat at £1.5bn.

The £2.5bn of investment banking profits helped produce a £4.4bn operating profit in the core business ...

Guardian  06 Aug 2010    Fractional Reserve Banking

RBS scrapes into the black

Accusations of money laundering

Barclays shareholders fear dilution of influence

The arrogant eagle

Barclays director lands £14.8m bonus

Bob Diamond

John Varley

Barclays Bank

Bankers' bonuses

Santander set to win battle for high-street domination

• RBS's sell-off of 318 branches to take place within 24 hours
• Acquisition will see Santander overtake HSBC
• Spanish bank expected to drop Williams & Glyn's brand ...

Guardian  02 Aug 2010    Branch Office Britain    Fractional Reserve Banking

Takeover code tweaks won't affect corporate behaviour

Mergers and Acquisitions

Big earners are still safe in their glass towers

The FSA may talk as if it's getting tough on the City, but it seems it has already run out of steam ...

In a detailed report, the FSA shows that of the 27 firms netted by its first regulatory trawl, 2,800 bankers got more than £1m, almost 90% of the total in bonuses.

Thousands more lower down the food chain also benefited from bonuses, usually worth at least 80% of their total income ...

Safe from the protests of ignorant consumers and from intervention by a government fearful of killing the golden goose, banks feel secure.

A little heat could be applied by the agents whom consumers pay to handle their money. Fund managers, pension trustees and independent financial advisers could exercise some control to the benefit of ordinary savers.

It does not happen and is unlikely to happen when this small and shadowy group are under instruction to maximise short-term profit for their customers.

They also benefit from fees and commissions that oil the industry's wheels.

The FSA chairman Lord Turner famously said that much banking activity was socially useless.

It's a pity the debate he sparked last year already seems to have run out of steam.

Guardian  29 July 2010    Fractional Reserve Banking    Wealth Log

Fresh bonus fears as bank profits rise

Banks ignore pleas and cut loans to the real economy again

Almost 3,000 City staff took home more than £1m last year

Size isn't everything in banking

Banks invented a load of financial products and services that the world doesn't really need

... there is one area where [Stephen] Hester misses the point.

"It is a popular myth to believe that banking and financial services dominate the British economy and should be cut down to size," he told readers of the Times.

"Banks account for a far smaller proportion of the economy than manufacturing – 7.7% compared with 12.8%. Everyone wants to see growth in the manufacturing sector, but we need growth in banking too."

Curiously, this argument was omitted from Hester's related speech to the British Bankers' Association.

It is nevertheless a strange claim. Once upon a time, and for a very long time, the banking sector was about 3% of the economy.

If you are going to applaud the fact that it is now 7.7%, you must answer the charge that banks have simply sucked up talent and capital from elsewhere (like manufacturing) and become a drag on growth in general ...

Guardian  14 July 2010    Fractional Reserve Banking    Rebalancing the Economy

Banks are carrying on while the rest of us pay the price

FSA chairman backs tax on 'socially useless' banks

The socially useless City

MPs launch inquiry into retail banking, as UK banks attack new bonus rules

• Treasury select committee to hold public inquiry into retail banking market
• EU bonus rules could see City losing business to US and Asia, banks argue ...

The committee will focus on the retail banking market and the arrival of new entrants on the high street.

Andrew Tyrie, chairman of the Treasury committee, laid out his plans as Britain's delegates at today's annual British Bankers Association (BBA) conference lined up to defend the sector against being forced to break up banks that are deemed "too big too fail".

Banks also hit out against new bonus rules being imposed by Brussels, warning that the City faced losing business to the US, Switzerland and Asia as bankers jetted out to countries with less stringent restrictions on high earners.

Acknowledging that the industry needed to do more to restore its reputation after the 2008 banking crisis, they also insisted it was time to stop blaming banks for the ensuing economic crisis ...

Guardian  13 July 2010    Fractional Reserve Banking

Can Mervyn King save the UK banking system?

... a glance back at the Bank's half-yearly Financial Stability Report released in the summer of 2006 shows why a different approach is needed.

A full year before the crisis erupted, the FSR noted the widening global imbalances, the build-up in debt, and the expansion in bank balance sheets, reflecting "position-taking in risky and prospectively illiquid instruments including structured credit products".

It noted the herd behaviour of banks that, while aware prices of certain assets were too high, carried on trading for fear of harming short-term profits or losing market share.

It noted that heavily leveraged banks could no longer fund their activities from their retail depositors and were increasingly dependent on wholesale money markets, leaving them "vulnerable to falls in market liquidity".

It noted that the stability of the financial system relied on investors knowing what risks they were taking, and that the complexity of the instruments that were being traded made it "difficult for investors to determine precisely how exposed they are to particular risk factors".

It's all there, in other words. The Bank clearly identified all the ingredients that would form a toxic cocktail a year later, even if, at that stage, it did not envisage the biggest financial crisis since the 1930s. What it lacked in 2006 was the ability to translate misgivings about banks' activities into action ...

Guardian  12 July 2010

Force banks to bolster capital, says BIS

Tighter banking rules will drain £1tn from financial system

Dick Turpin rides again, only this time he wears a suit and drives a Merc ...

Britain's biggest banks will warn the chancellor that up to £1tn is poised to be drained from the financial system, hampering economic recovery and depriving households and businesses of loans and other forms of credit ...

Observer  11 July 2010

Banks tell G20 new rules on holding capital could push UK back into recession

Project New Bank

It was Paul Volcker, former chairman of the US Federal Reserve, who observed that the only useful financial innovation in the past 20 years was the invention of the ATM. It's a popular sentiment. So a cautious welcome, please, for Project New Bank, which proposes to offer a better level of service to customers and to empower managers to make decisions in the branches ...

simlmx
All fake, everybody who understands how the money supply is created from debt knows that until you do what the founding fathers of the united states of america did which is control and issue the currency instead of borrowing from the central banks then the slavery of the people to the bankers will continue and government debt will always be there. to do the same thing over and over again whilst expecting a different result is insanity. That's what these clowns are doing.

Guardian  08 July 2010

Sir David Walker and Lord Levene

Force banks to bolster capital, says BIS

Central bank's bank insists that industry revamp is urgent as campaigners voice anger that G20 failed to take harder line ...

Banks should be forced to bolster their capital cushions to aid economic recovery, a powerful group of central banks said today in an apparent contradiction of the G20's move to delay industry reforms.

As the Bank for International Settlements, known as the central bankers' bank, set out the case for a rise in historically low interest rates around in the developed world, it also argued that making changes to the financial system had "acquired even greater urgency".

"[The reforms] can provide the most immediate protection to the financial system in the event of a new crisis. Moreover, acting now to improve the capital base and the liquidity of bank balance sheets will not jeopardise the recovery. Rather – by making financial institutions sounder – those actions will promote a sustainable recovery," it said.

The comments in the BIS annual report came amid complaints from pressure groups that banks were being "let off the hook" by the G20 after intense lobbying by the financial sector led to a delay in introducing rules requiring them to hold more capital ...

Guardian  28 June 2010    G20

Banks win battle to tone down Basel III

G20 banking reform agreed

Under a plan to be finalised for the next G20 meeting banks will have to improve both the quantity and quality of the capital they hold ...

Guardian  27 June 2010    G20

British banks out of kilter

British banks are horribly out of kilter with the rest of Europe and the US.

They are too exposed to short-term funding pressures.

In the UK, the largest banks need to replace £750bn to £800bn of loans and assets by the end of 2012. That's £25bn a month and the banks are running at half that pace.

There is plenty of long-term money in the world looking for a home, especially in Asia.

At the moment, though, there's a stand-off. The banks don't want to pay inflated rates; investors think they will eventually and are prepared to wait. Buyers and sellers, one assumes, will come together but the Bank clearly wishes they'd get on with it.

"Disruption to key funding markets could heighten the significant refinancing challenge facing banks internationally," says the report.

Banks could, of course, do themselves a mighty favour by trimming bonuses. The most eye-catching graph in the report is (once again) the one that shows how much extra capital could be saved via lower "discretionary distributions," as the Bank describes dividends and compensation.

Last year British banks could have accumulated an extra £10bn, rather than £2.5bn, if compensation ratios had returned to levels seen in 2005.

It's not the Bank's job to prescribe lower bonuses. It's up to shareholders to demand it – they should wake up.

Guardian  25 June 2010    Fractional Reserve Banking    

Banks win battle to tone down Basel III

Plans by global regulators to compel banks to set aside billions of dollars in extra capital to cope with future crises are to be pared back after intense lobbying by the industry ...

Proposed short-term emergency funding measures will go ahead. But the committee is likely to shelve the idea that banks should be forced to maintain a longer term “net stable funding ratio” that aligns the maturity of their assets and liabilities ...

Analysts had also calculated that the Basel III reforms, were they implemented in conjunction with new taxes around the world – such as the liability tax announced by the UK government this week – could have cut a typical bank’s return on equity from 20 per cent to 5 per cent ...

FT  24 June 2010    Fractional Reserve Banking

Basel chief hits back at growth curb claims

Five percentage point rise in bank reserves 'would prevent most financial crises'

G20 delay on Basel III bank curbs

Can we bank on Basel?

Banks set to gain from Osborne's tax regime

Britain's banks have emerged as major beneficiaries of the Budget, with the City warning that the coalition Government's proposed levy will fail to reach its target of generating £2bn revenues a year ...

Groups such as the City of London Corporation and the British Bankers' Association have been critical of the levy and warned that it could push business away from Britain.

But both UBS and Citigroup said the impact on banks' earnings would be relatively small and more than offset by the cuts to corporation tax, also promised in the Budget ...

Independent  24 June 2010

Bank tax is toothless, say number-crunchers

Five Ways to Tame the Financial Market Monster

• Restore Glass-Steagall;
• Restore core capital ratio;
• Ban short selling;
• Force hedge funds to keep capital reserves;
• Government-run ratings agencies.

The authors tell us the EU requires a core capital ratio of 4 per cent.

According to the Wikipedia article on reserve requirements, the UK's was 20.5 per cent in 1968, but only 3.1 per cent by 1998.

Note that the issue of Fiat money is missing from this list.

The G-20 summit in Canada might offer the last chance to regulate the out-of-control financial markets. But it seems more than likely that the leading industrialized nations will once again fail to reach an agreement, even though it is already clear which five reforms are urgently needed to avert future crises ...

Until now, the politicians' victories in this duel have been nothing but a triumph of words. "Never again will the American taxpayer be held hostage by a bank that is 'too big to fail,'", US President Barack Obama thundered.

"We can no longer accept a capitalist system without rules, without order and without norms," French President Nicolas Sarkozy fumed. "A system in which most of the money is earned through speculation instead of production -- that is not the kind of system in which I want to live."

These are grand words. But virtually nothing has happened to diminish the business of speculating in stocks and currencies, in the ups and downs of financial markets, the banks' practice of gambling with the minimum possible stake ...

The markets are growing and thriving as if the near-collapse of the global financial system had never happened.

In the first three months of this year alone, three major financial institutions, Goldman Sachs, JPMorgan Chase and Deutsche Bank, raked in $13.5 billion in profits ...

They continue to benefit from a financial system characterized by few rules and many loopholes. Hedge funds are subject to scant regulation, even though they are the ones that engage in particularly risky transactions.

Banks are not required to maintained sufficient capital reserves to cover the risks they are taking.

Finally, rating agencies continue to do business with banks whose products they then assign top marks to ...

The big wheel is still turning as if nothing had happened.

In fact, it is even being lubricated with the cheap money central banks pumped into the markets to minimize the consequences of the financial crisis.

As a result, those who helped create the crisis are now benefiting from government efforts to resolve it ...

Der Spiegel  2 June 2010    Fractional Reserve Banking    G20    

Capital Requirement

Reserve Requirement

George Osborne's 'sweeping City reforms

Mr Hector Sants - failed FSA chief - "stays on to deliver financial shake-up"

Mr Osborne must be more radical

... it is rather a stretch to believe that had the Bank of England been in charge of regulation over the past 13 years there would have been no emergency in the first place.

And the Conservative Party's emphasis in recent years on the need to transfer regulatory powers to Threadneedle Street felt like a crude attempt to pin the personal blame for the financial meltdown on Mr Brown (who established the FSA in 1997) rather than a considered response to what went so disastrously wrong in the financial services sector.

It still smacks strongly of party politics now that they are in office.

And, looking forward, far more important than who does the job of regulating the financial sector, is what they do.

In one sense there is consensus on what needs to be done.

Banks need to be forced to hold more capital. The use of leverage must be much more restricted. Derivatives need to be traded on a central, transparent exchange ...

The new regulators need to regard themselves as gamekeepers, charged with keeping the poachers of the financial services in line, rather than facilitating cheerleaders of a national success story called the City of London ...

The case for a separation of retail banking from the casino operations of investment banking is already made, not least by the cross-party Future of Banking Commission, which delivered its report earlier this week.

Mr Osborne's decision to put this question up for a year-long review – despite advocating a split while in opposition – feels like an invitation for the still powerful banking lobby to exert its influence behind closed doors.

For all his stern words at the Mansion House last night, it remains to be seen whether Mr Osborne has made a decisive break from the servile attitude of the previous government towards the City of London ...

Independent  17 June 2010

Will the Bank's new financial toolkit be filled with blunt instruments?

trigano Mr. Prosser seems to be implying that there wasn't an explosion in suspect lending practices in the build-up to the credit crunch.

Well, he is wrong. Defaults on mortgage loans have been subdued due to the MPC cutting interest rate to a 300 year low of 0.5% and holding them there despite CPI inflation running well over the 2% target with the concomitant erosion of savers deposits (an acceptable sacrifice it seems though one I suspect they may come to regret in the long-term).

Therefore his thesis that lending was not out of control due to the paucity of defaults is flawed, the fact is that the much mooted funding gap between what the banks were lending out and their savers deposits had grown to enormous proportions which necessitated their resorting to the money markets to make up the shortfall which did for Northern Rock when the money markets siezed up at the inception of the credit crunch.

If the banks had not lent out recklessly pumping up asset prices (houses of course) above their fundamentals then the funding gap between the banks' deposit holdings and their lending would have been negligible.

The interesting things is that this situation remains unresolved with the banks in a curious "limbo-state" due to the intervention of the Government and the BoE with their stepping in to supply £300 billion of funding to the banks to plug the gap.

This support is supposed to be withdrawn between 2011 and 2014, if they do this with the money markets still in a state of siezure the outcome is obvious.... the funding gap returns which necessitates the falling of asset prices (houses again!) to a point where deposits and lending are more in equilibrium.

In the long term this would be a much more stable situation and certainly good for the economy but will the Tories have the courage to do this since it would entail much pain?

And if they don't will that £300 billion be added to the national debt (knocking up to near 90% of GDP) which also could have unpleasant consequences for the UK's AAA credit rating. Interesting times..........

Independent  17 June 2010

Osborne unveils sweeping City reforms

Osborne abolishes FSA

Osborne gives Bank huge new powers

Osborne reveals sweeping changes to banking system

FSA's Hector Sants stays on to deliver financial shake-up

Hector Sants resigns as FSA boss

Vince Cable backs break-up of big banks

Mr Cable, quoted by a Channel 4 documentary to be screened today, said that the “direction of travel” towards separating retail and investment banking had been set ...

The 39 recommendations from include:

• A publicly available “living will” for each bank, detailing how it will avoid a taxpayer bailout if it gets into trouble.

• A new class of 100 per cent guaranteed deposit that promises to invest only in safe assets such as Government bonds.

• Urgent consideration to be given to breaking investment banking businesses from their retail arms.

• Breaking up investment banks so that their securities trading desks are separate from their corporate advisory businesses.

• All derivatives trading to be disclosed and restricted to publicly listed derivatives.

• More powers for a consumer regulator to promote competition between banks.

• A “prudential regulator” with powers to restructure a bank where it is seen as too big to fail.

• A powerful “systemic risk” regulator with the power to damp down unsustainable asset price bubbles.

• Abolish the requirement for bank regulator to “maintain the competitive position of the UK”.

• Boards of bank regulators to include people independent of the banking industry.

• Non-executive directors of banks to take account of stability of financial system as a whole, even if it conflicts with the interests of shareholders.

• Tighten bonus criteria for bank executives and frontline sales staff.

• UK Financial Investments, the body which owns Government’s shares in Northern Rock, RBS and Lloyds, should become more active, applying a “public interest test” to any disposal and ensuring the structure of the industry is sustainable.

• Auditors reporting should be tightened up.

• Rating agencies to be assigned bank clients by a regulator.

• A code of conduct for the banking industry

Times  13 June 2010    Fractional Reserve Banking

Commission Report

Banks are carrying on while the rest of us pay the price

Another enlightened call for reform

Bank commission calls for 'profound reform' of banks

Risk-free "safe haven" accounts guaranteed by the government should be set up as part of a "profound reform of the banking system", a report says.

The Future of Banking Commission wants improvements in saver protection and restructuring of banks ...

The commission says its recommendations aim to put ordinary people at the heart of a reformed banking system.

They include reforms to the structure of banks so if they fail, depositors are protected, and the introduction of new competition and regulatory regimes that make bank boards responsible for both meeting customers' needs and for their own solvency.

Other ideas include an "ethical culture" which would see banks stop paying commissions to front-line staff ...

BBC NEWS  13 May 2010

Banks are carrying on while the rest of us pay the price

Another enlightened call for reform

We should back the Davis report, but ...

Commission Report

Banking split essential to avoid new financial crisis, warns OECD adviser

'We need to separate capital market banking from standard commercial banking. That's the most basic lesson of the crisis,' says Adrian Blundell-Wignall ...

Blundell-Wignall, speaking in a personal capacity at the OECD's annual forum in Paris, said one of the big obstacles to better global governance was "institutional capture" of policymakers by the leading global financial institutions ...

Blundell-Wignall, the OECD's deputy director for financial and enterprise affairs and a former investment banker, was critical of the reform proposals currently being discussed.

"How big a crisis is big enough? It seems as if this crisis was not big enough ... If we can't even do that, I'm very pessimistic about the future of capitalism. I'm afraid that governance will only be sorted out by another big crisis and it will probably be bigger than this one."

He added later that reforms of banking should also include common limits on leverage for all countries, so banks would be unable to circumvent attempts to clamp down on excessive risk-taking ...

Guardian  27 May 2010    Corporate State Britain

Investment banks likely to face competition review

Lazard man in Kraft spotlight is right to exit

Reforms put Wall Street in its place

The most important provision in the bill may be the Volcker Rule, which restricts the ability of banks to trade on their own account.

Goldman Sachs became the poster child for this kind of trading when it was revealed that the firm was selling mortgage-backed securities designed by an investment partner who was shorting mortgages ...

donoevil
21 May 2010, 5:26PM

My God, either you're a sucker or very easily pleased. Real reform comes when the power of banks to create money (via fractional reserve banking) is severely curtailed. That's when the market serves and does not command.

Hickory recently posted some interesting quotations which you might find instructive.

"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity."

Abraham Lincoln

"Banking was conceived in iniquity and was born in sin. The bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough deposits to buy it back again. However, take it away from them, and all the great fortunes like mine will disappear and they ought to disappear, for this would be a happier and better world to live in. But, if you wish to remain the slaves of bankers and pay the cost of your own slavery, let them continue to create money."

Sir Josiah Stamp, Director of the Bank of England (appointed 1928). Reputed to be the 2nd wealthiest man in England at that time.

"The powers of financial capitalism had a far-reaching plan, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. Their secret is that they have annexed from governments, monarchies, and republics the power to create the world's money."

Prof. Carroll Quigley (Harvard and Georgetown)

Guardian  21 May 2010

Obama gets his big bank reforms

... we can't yet be certain of the minutiae of the overhaul, because the Senate's reform package has yet to be reconciled with the House of Representatives. Here, in general terms, is what is likely to happen:

1) Most of the $600 trillion derivatives market will be forced through third-party clearing houses, to increase oversight of the deals and ensure participants in the deals put up sufficient margin or security against the risk of losses. As I've mentioned before, this will significantly reduce the profitability of derivatives trading for banks, because it will lessen their ability to blind gullible investors with the wizardry of their science.

2) Banks may be banned from proprietary trading or speculating for their own account.

3) An important part of banks' derivatives business, their swaps desks - which include the business of insuring loans through credit default swaps - may be walled off, or forcibly separated.

4) There'll be a powerful new consumer protection agency.

5) There'll be new powers for the authorities to seize control of large systemically important institutions that appear to be running into difficulties.

6) There'll be new powers for the authorities to break up troubled systemically important institutions in a supposedly orderly way.

7) There'll be new multi-authority oversight of the risks in the financial system.

8) In general, the Federal Reserve will emerge as the regulatory super-power, though the precise scope of its remit remains to be defined. ...

... there will be indirect implications for all big British banks, because where America leads in financial reform has a significant influence on the room for regulatory manoeuvre of the British government ...

Robert Peston  21 May 2010

Obama reasserts Volcker rule

Volcker Rule

US Senate approves sweeping reforms of Wall Street

Wall Street reform bill in detail

Key Points of the Wall Street reform bill

Banks warn Volcker rule will damage consumers

Banks warn Volcker rule will damage consumers

The same tired mantra from the banks: deregulation is in your interests. It's all about something called 'investment'.

Organisations lobby EU and US against regulatory clampdown ...

In their letter, the bankers made the point that the "health of our respective economies is inextricably connected, with trade and cross-border investment flows linking the transatlantic economies and capital markets".

Observer  09 May 2010

RBS chief calls for 'strong stewardship' of UK economy

Who caused the crisis, Mr Hester? And who ran up a mega-deficit bailing RBS out?

One of the first bosses of a major company to speak following the election which appears to be delivering a hung parliament, Hester said this morning:

"The politics of the UK is down to the voters of the UK. All that matters to us is whether there is strong stewardship of the economy because, as we see from Greece, getting the debt under control is very important."

Rioters have taken to the streets in Greece after the EU and International Monetary Fund bailed out the debt-laden country with a €110bn (£95bn) package that requires deep cuts to the budget. The bank has a £1.5bn exposure to Greece.

Hester said that the problems in Greece were a clear example of how important it was for nations to "get their finances under control" ...

Guardian  07 May 2010    

IMF urges double tax hit on banks to refund taxpayers

In a report delivered to G20 nations on Tuesday, but yet to be published, the Fund has urged countries around the world to impose two new taxes on financial institutions: a "financial stability contribution" which levies a small charge on their balance sheets, and a "financial activities tax", which taxes excess profits, including bonuses ...

Telegraph  20 Apr 2010

IMF fastens the policy tightrope

The IMF has recently proved its worth by displaying a remarkably nuanced view of markets.

Far from the overly rosy view of deregulation the fund was once accused of, the report explains how “financial channels can amplify sovereign risk”.

That sovereigns usually do not have to post collateral for over-the-counter swaps, the IMF says, makes dealers hedge any perceived risks through credit default swaps rather than call additional “margin” as they would with corporate clients.

So worries quickly spread to a shallow and therefore volatile short CDS market, whose waves in turn can spill over to other assets.

Policymakers, then, confront two tremendous tasks. One is to make financial markets safer – reform is moving in the right direction, but too slowly.

The other is a fiscal balancing act to retain – or regain – credibility with lenders without cutting off lifelines to economies still in need of them.

Leaders must overcome short-termism and divisions to convince the public they will do what it takes to consolidate public finances in the medium term.

Fiscal statesmanship is now indispensable.

FT  20 Apr 2010    Fractional Reserve Banking    IMF

FSA chairman to urge tighter controls on banks

Lord Turner believes that regulators such as the FSA should force new, higher, capital and liquidity ratios on the world's largest banks ...

Guardian  02 Mar 2010

FINANCIAL INSTITUTIONS - TOO IMPORTANT TO FAIL?