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Proprietary trading |
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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 BankingProprietary 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 EconomyMerger 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'
• £3.9bn profits almost all due to US investment armBarclays weighs 'option' of leaving UK amid calls to break up big banks
It's still the casino that dominates the profits ...
• '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" ...ChrisWoodsGuardian 05 Aug 2010
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?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.RBS moves back to black
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 BankingRBS 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 BankingTakeover 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 LogFresh 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 EconomyBanks 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 2010Force banks to bolster capital, says BIS
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 ...Tighter banking rules will drain £1tn from financial system
Dick Turpin rides again, only this time he wears a suit and drives a Merc ...
Observer 11 July 2010Banks tell G20 new rules on holding capital could push UK back into recession
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 ...Project New Bank
simlmxGuardian 08 July 2010
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.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 G20Banks 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 BankingBasel 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 2010Bank tax is toothless, say number-crunchers
Five Ways to Tame the Financial Market Monster
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 ...The authors tell us the EU requires a core capital ratio of 4 per cent.
- Restore Glass-Steagall;
- Restore core capital ratio;
- Ban short selling;
- Force hedge funds to keep capital reserves;
- Government-run ratings agencies.
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.
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 G20Capital Requirement
Reserve Requirement
George Osborne's 'sweeping City reforms
Mr Hector Sants - failed FSA chief - "stays on to deliver financial shake-up"... 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.Mr Osborne must be more radical
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 2010trigano Mr. Prosser seems to be implying that there wasn't an explosion in suspect lending practices in the build-up to the credit crunch.Will the Bank's new financial toolkit be filled with blunt instruments?
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 2010Osborne 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 BankingCommission 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 2010Banks 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 BritainInvestment 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 ...donoevilGuardian 21 May 2010
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)... 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:Obama gets his big bank reforms
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 2010Obama 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
Organisations lobby EU and US against regulatory clampdown ...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'.
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 2010RBS 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 2010The IMF has recently proved its worth by displaying a remarkably nuanced view of markets.IMF fastens the policy tightrope
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
Lord Turner believes that regulators such as the FSA should force new, higher, capital and liquidity ratios on the world's largest banks ...FSA chairman to urge tighter controls on banks
Guardian 02 Mar 2010FINANCIAL INSTITUTIONS - TOO IMPORTANT TO FAIL?