The financial services industry is as much part of the national infrastructure as the electricity grid or the water supply.

And the financial products that individuals and ordinary businesses outside the finance industry use every day ... are provided by this "utility".

Advocates of reform of the trading system do not propose that the casino should be closed down: only that it should be separated from the utility ...

Supporters of change also suspect that the poor service that banks offer has something to do with a basic incompatibility between the service-oriented culture required for customer-oriented retail banking and the buccaneering attitude appropriate to trading ...

The Independent Commission on Banking headed by Sir John Vickers which the coalition Government has established will be told that such a separation between utility and casino can't be done – although it was done in Britain for most of the 20th century.

The commission will be told that if banks can't gamble with their customers' money, they won't be able to give competitive rates of interest, or clear cheques for free.

The commission will be told that if the City of London can't get its hands on people's savings, it won't be able to compete in global markets.

And the commission will be told that problems like the 2007-8 credit crunch will not recur; better risk management and more effective regulatory supervision will keep the pesky traders in check.

We'll see if Sir John and his colleagues find these arguments more persuasive than I do.

Independent  20 June 2010

What is a Positive Money System?

This is an extract from Positive Money's submission to the Banking Commission

A positive system of money and banking must:

•not create excessive debt

•be counter-cyclical (or neutral) rather than pro-cyclical

•support the productive economy, rather than simply extracting wealth from it

•not trigger asset price bubbles through positive feedback loops

•require no government support (including explicit and implicit guarantees, deposit insurance, or bailouts)

•allow badly managed banks to go bust or be taken over by more successful banks

•be inherently stable and self-regulating (rather than being inherently unstable)

•ensure that businesses and entrepreneurs are able to get credit to implement their ideas

•not require manipulation of interest rates, and allow interest rates to be set by the markets

•not require any subsidies, whether indirect (deposit insurance) or hidden (such as the privilege of the banks to create the money supply and collect interest on every pound of bank deposits)

•the payments system should be insulated from investment activities, so that failed investments and insolvency of a bank does not threaten the payment system (and so that no bank can be ‘too big to fail’ or ‘too systemic to fail’)

•users of the banking system should be able to see how much risk they are really taking, and have access to investment products that meet their preferred risk profile and ethical principles

•private interests (including banks) should not be able to devalue money for their own benefit;

•if new money is created, the benefit of creating that new money should be spread as widely as possible, rather than going to a concentrated group of people or companies

PositiveMoney      Where does money come from?

Positive Money’s Submission to the Independent Banking Commission

Financial Services Bill is unveiled by Osborne

Old wine in new bottles??

The bill will create three new bodies, the first two within the Bank of England, to regulate financial services:

• the Financial Policy Committee (FPC), which will have overall responsibility for financial regulation and monitoring the risks of the financial sector to the economy. It will oversee, and have the power to instruct, two new financial watchdog.



• the Prudential Regulation Authority (PRA), which will take over responsibility for supervising the safety and soundness of individual financial firms.



• the Financial Conduct Authority (FCA), which will be tasked with protecting consumers from sharp practices, and making sure that workers in the financial services sector comply with rules.

BBC NEWS  27 Jan 2012    Bankocracy Log    George Osborne

Financial Services Bill

George Osborne urged to rethink reforms

The joint committee said there was a risk of repeating the failure of the previous tripartite regulatory system, which split responsibility three ways between the Treasury, the Bank of England and the Financial Services Authority but was found lacking when the crisis took hold.

It said the division of power and responsibility between the three new organisations the legislation creates – the Financial Policy Committee, the Prudential Regulation Authority (PRA) and the Financial Conduct Authority – was still unclear ...

borsicorn

I find that I have to search a lot further to find the truth lately.

I was watching Russia Today ... last week and they were discussing hypothecation and re-hypothecation.

Fascinating subjects and I was amazed that they are allowed in the UK.

The prog said only the UK permits this and that is why so many foreign banks have offices in the city.

Suppose I lend you £1.

You then declare assets of £1 and go on a borrowing spree against your asset. You contact lots of lenders who will lend you £1000's against your asset.

If I withdraw my £1, the bubble bursts.

Outlawed everywhere else on the globe apart from the UK.

Tel  19 Dec 2011

Rumours, disasters and ‘re-hypothecation”.

And what is the classic defence of the use of hypothecation and re-hypothecation?

Oh, I remember, it was that it provides liquidity.

I wonder if Wells Fargo has quite a few assets it ‘hypothetically’ controls?

I wonder if Deutsche or Commerz or Soc Gen have more? And the British banks and brokers? Well London is the centre of the ‘re-hypothecation’ trade.

Cameron and Osbourn go off to Brussels with a trumpety trump like two bumptious Eton fifth formers, cock-sure arrogance and ignorance mixed, all puffed out cheeks and rehearsed school boy bluster.

They are so behind the curve it makes me cringe.

Golem XIV  08 Dec 2011

MF Global's collapse: a familiar tale of regulatory failure

One of the hallmarks of the financial crisis was the degree to which firms became so highly leveraged that a run on the bank became almost inevitable.

The level that MF Global was permitted to leverage itself should have raised red flags, but didn't.

For example, it was reported that MF Global had liabilities at the end of June of $44.4bn against only $1.4bn in equity.

That fact, coupled with the realisation that there was no primary regulator of MF Global, or brokerage firms like it, is even more disturbing.

Instead, a number of regulatory agencies and industry groups each has a piece of the oversight.

But with no one taking a look at the consolidated operations of the firm, it was difficult to impose strict rules regarding leverage ...

Gdn  11 Nov 2011    Alternatives to Fractional Reserve Banking    Bankocracy Log    Global Risks 2012

Golem XIV

The Faults of Fractional-Reserve Banking

The law of opposites: Illusory profits in the financial sector

The Adam Smith Institute report is structured around six shortcomings in the rules governing bank profit and capital reporting, which must be addressed:

• Uncertain future cashflows can be recognised as certain by purchasing a credit default swap (CDS) or similar “protection”, even though the supplier of the protection is likely to default if the insured event occurs;

• Profits can be recognised from the increased value of assets, or decreased value of liabilities, on the basis of a market price, even though the totality of revalued assets or liabilities could not be sold at that price;

• Profits can be recognised from the increased value of assets, or decreased value of liabilities, even when the revaluation of assets is estimated, not by market prices, but by a model built by bank employees. This is the so-called mark-to-model approach to valuation;

• The net present value of uncertain future cashflows can be recognised as profits even when they are estimated using implausibly optimistic forecasts. (This is a variation of the mark-to-model problem listed above);

• The EU’s IFRS accounting system, voluntarily adopted by UK and Irish banks at the banking company level, is inconsistent with UK law

• Banks need not make provision for expected losses when calculating their profit ...

Adam Smith Institute  14 Dec 2011    Bankocracy Log    Corporate Sociopathy Log

Gordon Gekko

Banks use accounting loopholes to inflate profits and bolster bonuses

Mark to model

'Too big to fail' Barclays, RBS, Lloyds and HSBC will be forced to increase capital buffers

Barclays, Royal Bank of Scotland, Lloyds Banking Group and HSBC are on a list of 29 banks deemed to be so important to the global financial system they need better protection against collapse.

The Financial Stability Board, an arm of the Bank for International Settlements, unveiled its official list at the meeting of G20 leaders in Cannes on Friday.

Of the banks listed 17 are from Europe, four are from Asia and eight are US banks, including Goldman Sachs and a number of US investment banks ...

Under the FSB rules, every bank on the list will have to hold more than the 7.5pc regulatory minimum capital ratio.

They are split into four "buckets", with least risky required to hold an extra 1pc. Each successive bucket adds another 0.5pc.

A special fifth bucket exists to deter the world's biggest banks from getting any larger.

Any lender which qualifies for that will be hit with a 3.5pc capital surcharge. At the moment, no bank is in the fifth bucket ...

Tel  04 Nov 2011    Bankocracy Log        

Regulators Name 29 Banks Critical to Global Stability

The financial reform grudge match is going to continue for some time yet

Sir Mervyn effectively said the Bank and the new Prudential Regulation Authority should have an absolute right to exercise their judgement when applying their powers, rather than being expected topolice a rulebook that the banks and their well-paid lawyers always find it so easy to dance around.

The example the Governor gave was that he wants to be allowed to tell a bank that has increased its leverage to cut it back even if it has stayed within the rules, if he feels that it is taking on too much risk.

He wants, in other words, to return to the system of regulation that the Bank of England ran until its powers were given to the Financial Services Authority in 1997: a system in which regulators used their discretion rather than referring to the whistle ...

Ind  04 Nov 2011    Bankocracy Log    Coalition Log    

Regulators Name 29 Banks Critical to Global Stability

RBS the 'most vulnerable' bank in Europe

The state-backed bank is already 83pc owned by the taxpayer and would likely face full nationalisation under the scenario set out by Credit Suisse, which estimates RBS might face a capital shortfall of £16.9bn in a new round of Europe-wide industry stress tests.

"RBS appears to be the most vulnerable although the company has said that the methodology, especially the calculation of trading income, is especially harsh for them," said Credit Suisse ...

Tel  14 Oct 2011    Bankocracy Log    Coalition Log

Regulators Name 29 Banks Critical to Global Stability

European Banks Face Deadline to Raise Capital Levels

European banks to sell £26bn of loans

Graham Martin ... at KPMG, said:

"Banks have been prepared to take some pain now, including where the deal structure allows them to share in future returns with the acquirer.

"On the buy side, we are starting to see a serious number of strategic and financial purchasers actively pursuing and acquiring many of the non-core loan portfolios currently in the market.

"Most active of late have been many of the private equity funds who have recently seen supply increase rapidly in line with the uptick in bank deleveraging activities." ...

In July, Royal Bank of Scotland agreed to sell part of a £1.4bn portfolio of commercial loans to Blackstone Group while Lloyds Banking Group is selling a £6bn portfolio of shipping loans ...

According to reports, US private-equity firms and hedge funds have raised more than $5bn (£3.2bn) in funds to buy distressed European assets at what they see as a discounted price ...

David Sayer, head of banking at KPMG, said:

"This feels like the start of the reshaping of the European banking market – with the emergence of "shadow banks" such that the market will begin to look more like the US market with credit intermediation being spread beyond the banks.

"This will create real challenges for regulators who are tasked with ensuring financial stability." ...

Tel  07 Oct 2011    Bankocracy Log    EU Log    Private Equity    Shadow Banking

Bank reforms will keep Britain afloat

Consider the deficit side of the ledger: fiat currency boom 'n bust banking will continue to dominate Britain's 'free market train wreck'

... consider the benefit side of the ledger.

The UK was almost bust by the 2007-09 banking crisis because it houses banks that are so big in relation to the size of the economy.

The risk that the next banking crisis could sink the UK and its taxpayers had to be eliminated as far as possible.

That is the rationale for going further than the new souped-up requirements by international regulators for banks to hold more capital, of better quality.

UK ringfenced banks will have to hold equity capital equivalent to at least 10% of their risk-weighted assets (more than the 7% level demanded by Basel's boffins) and then top up their coffers with unsecured debt.

Overkill, say the bankers.

Rubbish: by historical standards – ie norms prevailing 20 or 30 years ago, before bankers saw that more leverage and more risk was the easiest way to improve returns on capital and pay themselves more – it is not excessive at all.

Indeed, given the risk of colossal upheaval that would follow meltdown in the eurozone, there is a fair argument that the ICB has been lenient ...

Gdn  12 Sept 2011    Bankocracy Log    Coalition Log

A Free Market Train Wreck    Fiat Currency: A Faustian Pact

The banks ... too big for the economy

Banks face biggest shake-up for decades

The elephant in the room - fiat currency - remains unnoticed

To give an idea of the scale of the reform, the Commission estimates that up to £2 trillion of banks loans and investments - or up to a third of their total loans and investments - would end up behind the ring fence.

The biggest structural changes would be faced by Barclays and Royal Bank of Scotland, whose investment and wholesale banking activities are very substantial and would not be allowed inside the ring fence.

Lloyds and Santander would be able to put most of what they do inside the ring fence. And HSBC would face less reorganisation than Barclays and RBS, but more than Santander and Lloyds.

The new protected retail banks would have their own boards, where there would be a majority of independent non-executive directors.

And they would be forced to hold much more capital as a buffer against losses - capital equivalent to at least 10% of so-called risk-weighted assets - than the new international minimum.

The Banking Commission also wants the firewall to be relatively high.

So capital could only be moved from the retail bank to the investment bank if that did not mean there was a risk of the retail bank's capital resources falling below the 10% minimum ...

BBC NEWS  12 Sept 2011

ICB report: reaction

British Bankers' Associaton

"UK banks are well on the way to implementing the sweeping reforms already brought in and expected to be brought in by UK, EU and global authorities to make banks and the system safer and to ensure that banks can fail in the future with savers and taxpayers protected and the supply of finance to the economy maintained.

"The ICB's recommendations cover the same important issues. Any further reform measures adopted by the UK authorities need to be carefully analysed and compared with those agreed internationally. It is vital that the full impact any further reforms will have on the economy, the recovery and banks' ability to support their customers in the UK is understood."

David Miller, fund manager at Cheviot Asset Management

"An important point is that the banking industry is a very important component of the UK economy and whatever is done needs to ensure that we retain a strong banking industry.

"It is a much more important component to the UK than it is to other countries which is why the gold plating of the regulatory regime which is being implemented globally has got to sensible and not push us into a corner where the banking industry here is uncompetitive."

Tel  12 Sept 2011    Bankocracy Log    Coalition Log

A Faustian Pact 2    An Addiction to Growth

Banking reform would cut growth

Vickers report: banks get until 2019 to ringfence high street operations

Fiat Money Systems

Bank ring-fencing gets backing from leading investors

The comments from David Pitt-Watson, a senior City fund manager and member of the cross party Commission on the Future of Banking, are likely to raise the stakes in the battle over financial reform ...

The Prime Minister is believed to be concerned that the ICB's recommendations, published next Monday, could jeopardise the recovery, cost jobs, and undermine the UK's dominant position in financial services ...

Mr Pitt-Watson, however, dismissed the argument as misguided.

"Right now, banks' cost of capital is low because they are 'too-big-to-fail'.

"As long as the retail bank is still within a ring-fence, it will still be protected, so its cost of capital will not go up, and can do just as much lending as today," he said.

"However, the cost of capital for the investment bank may go up, since it will be allowed to fail.

"As a result the banks might tend to put more of their resources into the retail bank.

"The ring-fence might lead to more money going into the economy, not less." ...

Tel  05 Sept 2011    Bankocracy Log

A Faustian Pact    A Faustian Pact 2

Weak coalition ducks decision on bank reform

Ring-fencing will dent growth

Matthew Hancock: tackle bankers' greed or expect history to repeat itself

The book challenges the myth that people and businesses always act in their own best interests, and recommends a series of checks and balances to ensure poor judgments are challenged.

Among the most controversial proposals is the idea for the creation of a "public protagonist" with the remit to question corporate transactions, such as mergers and takeovers, where managements are highly-incentivised to deliver deals that may not be in the interests of stakeholders.

The protagonist would have the authority to convene special shareholder meetings on behalf of the public and publicly test courses of actions planned by the management.

Better decision-making should also be incentivised, the authors suggest, by legislation to create a new crime of professional gross negligence for senior managers of "systemically-important financial institutions", with convictions punishable by imprisonment ...

Banker bonuses should also be subject to a 10-year clawback, the authors suggest, while women should make up at least 30pc of company boards because greater diversity changes decision-making and brings better business performance.

If businesses do not comply within a year with this gender recommendation, the authors believe legislation should force them to do so ...

Tel  04 Sept 2011    Bankocracy Log    Coalition Log    Corporate Sociopathy    What is to be done? Log    

David Cameron in push to dilute ICB ring-fence reforms

'Reform' will be of the "light touch" variety - like Gordon Brown's presumably!

'Divi' and his Chancellor clearly believe - as the planning 'reforms' confirm - that the country is stuck with housing bubbles - financed by fiat currency - as a substitute for rebalancing the economy away from the City.

Senior Whitehall sources have revealed that the Prime Minister believes he will now have to "take over" the banking debate and explain why he believes economic growth should come ahead of more regulatory upheaval.

The sources have made it clear that it is not just about delaying any reforms but that the reforms themselves need to be fundamentally re-thought.

The Prime Minister wants to focus on what has been achieved on bonuses, lending and other banking reforms and make it clear to the markets that the Government backs the UK's banks.

Although there will still be some form of ring-fencing, which the Chancellor has already backed, it will be of a "light-touch" variety ...

Tel  03 Sept 2011    Bankocracy Log    Coalition Log    'Divi' Dave Log

Fresh hope for banks as David Cameron takes charge

Ring-fencing banks is not the answer

Clegg backs Cable in battle over bank reform

The Prime Minister, who has been lobbied intensively by bank bosses, has accepted their argument that the changes should be phased in over several years.

Government sources confirmed that could mean they would not take effect until after the next election, as The Independent predicted yesterday.

But Mr Cameron and Mr Osborne are braced for a backlash from Sir John Vickers, chairman of the Independent Commission on Banking, which will propose ring-fencing of the banks' retail and investment arms in its final report on 12 September ...

Ind  01 Sept 2011    Bankocracy Log    Coalition Log    Corporate Sociopathy Log    

Banks 'still expect taxpayer to pay for their failure'

Darling's verdict on Britain's bankers

The disproportionate damage banks can do

RBS helped bankroll Europe's last dictator

UK banks fund deadly cluster-bomb industry

British banks ignore money-laundering rules

Coalition must show it values banking sector - the UK needs the tax

Hegel on Wall Street

Balancing on a Cable

Revolving-door culture leaves government full of clever bankers

Bank of England chief Mervyn King calls for 'narrow banks'

Fiat Money Systems

City hits back at Vince Cable over banking reform comments

"There is only a finite amount of capital available"????

Cable has always argued for a tougher approach to the banks than the Tories.

But he sparked uproar yesterday when he said bankers were being "disingenuous in the extreme", in arguing for a delay in plans by the Independent Banking Commission (IBC) to force banks to ringfence their retail and investment banking operations.

Any regulatory changes could force high street banks to increase their reserves and the banking lobby has suggested it could endanger economic recovery.

Stuart Fraser, a former stockbroker and head of the City of London Corporation, said:

"It is vital we reconcile political imperatives with what is practical for banks.

"There is only a finite amount of capital available, and if banks have to stump up more, they shouldn't be rushed."

Sources in Whitehall have indicated that any changes could wait till after the 2015 general election, with Osborne reported as saying they could wait till 2019 ...

Gdn  31 Aug 2011

Analysis

Norman Smith

Chief political correspondent, BBC Radio 4
--------------------------------------------------------------------------------
However anxious ministers may be to ensure taxpayers never again have to foot the bill for bailing out stricken banks - they are in no rush to press ahead with any plans for them to be "split up".

The reason? They appear to have been convinced by many of the concerns raised by the City.

In particular, fears that such a move would be hugely de-stabilising for the banks at a time when ministers are desperate for them to focus on lending more money to British business.

They will also have been acutely alert to warnings from the British Bankers Association that any "split up" could prompt some banks to relocate outside Britain.

The danger for the government however is that delaying the changes until after the general election - voters may conclude that ministers have simply caved in to pressure from the banks. BBC NEWS 31 Aug 2011

   Bankocracy Log    Corporate Sociopathy Log    Third Meltdown

Banking reforms 'may not happen until 2015'

Bank shares bounce on regulation fightback

Fiat Money Systems

Banking reforms 'must be delayed'

They don't come more 'third meltdown' than Angela Knight

Plans to reform the banking sector should be put on hold until the economy has recovered and taxpayers have been repaid for bailing out the banks, the head of the British Bankers' Association (BBA) has said.

Chief executive Angela Knight argued that now was not the right time to add to the sector's regulatory burden ...

Ind  29 Aug 2011    Bankocracy Log    Corporate Sociopathy Log    Third Meltdown

George Osborne and Vince Cable at war over bank reform

RBS helped bankroll Europe's last dictator

UK banks fund deadly cluster-bomb industry

British banks ignore money-laundering rules

BBA's Angela Knight faces calls to quit after PPI cave in

'We're natural hate figures. but that really isn't fair'

Banker-bashing is a British sport - let's move on

Banking trio fail to meet accounting standards

The Financial Reporting Council's Audit Inspection Unit (AIU) said firms were failing to provide "professional scepticism, particularly in respect of key areas of audit judgments, such as the valuation of assets and the impairment of goodwill and other intangible assets".

In particular, the report said audits at three "subsidiaries of overseas banks [out of 10 banks and building societies reviewed] were assessed as requiring significant improvements".

It is the first time that the FRC has looked into the accounting treatment of UK subsidiaries of international banks.

Paul George, FRC director of auditing, said the three unnamed banks had been "graded in the lowest possible category" - a situation, he warned, posed significant risk.

"These banks have significant deficiencies in their auditing. This is in terms of adequacy of control issues and collective provisioning," said Mr George, adding "it means they are not looking at loans individually – rather, they are provisioning against the entire portfolio using a lot of assumptions about that portfolio and about the economic outlook which are simply not being challenged enough.

"Scepticism is needed more than ever in these circumstances." ...

Tel  19 July 2011    Bankocracy Log        

Demand to curb 'casino banking' risks splitting the coalition

Former chancellor Nigel Lawson ... believes the ringfence suggested in Vickers's preliminary report – and apparently endorsed by Osborne – is not sufficiently radical. "My fear is that it works on paper, but it would not work in the real world," he said. "I think there needs to be a structural solution."

Paul Fisher, a director at the Bank of England, conceded last week that uncertainty about regulatory reform was weighing on financial markets.

The government has faced relentless lobbying from City banks threatening an exodus from the Square Mile and Canary Wharf if a full-blown breakup went ahead.

But the bank's governor, Sir Mervyn King, has called for a "clean" solution to the problem of banks that have become "too big to fail".

The New Economics Foundation's Tony Greenham warned that the Vickers proposal, involving Chinese walls protecting retail banking, would be bureaucratic and complex.

"Behavioural remedies are never as effective as institutional remedies," he said.

"You can create a set of rules to help people behave in a certain way, but they will find ways around that — that's what highly paid bankers do.

"It would be a much less bureaucratic solution just to split them up."

Gdn  02 July 2011    Bankocracy Log    Fiat Currency Banking    

Banks' reliance on the state must end

Margaret Hodge, MP, chairman of the public accounts committee, said:

"Contracts entered into when state support was put in place have allowed some of these gains to be used to pay bonuses to certain bank staff and dividends to shareholders, rather than enhancing the financial sustainability of the sector, and this causes us and the wider public much concern.

"This committee feels that it is inappropriate for banks dependent on taxpayer support to be generating excessive incomes, unnecessary bonuses or dividends at the expense of exiting public support."

The committee's report said: "The Treasury must explore all avenues to ensure that the remuneration packages for the part-nationalised banks provide value for money for the taxpayer, and properly reflect the burden on the taxpayer for continuing support."

It said that assessing whether the taxpayer obtains "value for money" from ending its support will depend on the sale of shares in Royal Bank of Scotland and Lloyds of Bank Group.

When the committee took evidence in February, the taxpayer loss on these stakes was £8.4bn.

However, the committee also believes the government should take account of the £5bn of interest it pays on the £124bn of debt it incurred as a result of bailing out the banks when assessing the return to the taxpayer ...

Gdn  20 Apr 2011

Why it really pays to work at RBS

Iceland’s Way

Banking Commission: Interim Report

Vickers report herals banking shake-up

The Financial Times points out that 'subsidiarisation' is favoured instead of full 'Glass-Steagall' separation of 'investment' and retail functions.

Quite how such a half-house concoction will safe-guard retail customer's deposits remains unclear.

The fact that bank shares rose on publication of the report suggests investors are happy with the contents.

FT  11 Apr 2011

Banks top FTSE 100 after ICB Report

Bruce Packard of stockbroker Seymour Pierce

"Although there will be a lot of squealing in public, we expect the bank managements to be secretly quite pleased because (subject to regulatory minimum standards) banks will still be allowed to transfer capital and liquidity from their UK retail banking activities to the markets and investment banking business."

Gdn 11 Apr 2011

Robert Peston's blog on the ICB's Interim Report has the most detail I have seen on the recommendations, short of viewing the full .pdf

... will the banking commission's proposals split the coalition, pitting the Lib Dems - supposedly more radical on bank reform - against the Tories?

Probably not - because the commission seems to have framed its recommendations with more than half an eye on what each party said it wanted before the election. Both Lib Dems and Tories can claim the commission is offering something similar to what they wanted.

Lib Dems can and probably will say that ring-fencing retail banking is close to splitting retail from investment banking.

As for Tories, they proposed a form of America's so-called Volcker rule. And the interim report says: "The Volcker rule shares a common motivation with the retail ring-fence in that it aims to curtail government guarantees."

In other words, the commissioner is presenting his retail ring-fence as a kind of Volcker rule for Britain.

Robert Peston  11 Apr 2011

Volcker Rule

Ex-Treasury secretaries back Volcker rule

Lloyds told to sell more branches by banking commission

• Lloyds already ordered to sell 600 branches by EU
• New sales could form a deal with Northern Rock
• All banks should ringfence savings operations
• Full separation of investment banking operations ruled out

Gdn  11 Apr 2011

UK banks must ringfence retail arms

As part of the proposals put forward by the Commission, large banks will be required to maintain a minimum equity capital base of 10pc - or £10 of shareholder equity for every £100 lent out.

This is 3pc above the level required by the Basel III rules introduced last year ...

The ICB said in the report: "Separation between retail banking and wholesale and investment banking could take various forms, depending on where and how sharply the line is drawn.

"The Commission is ... considering forms of retail ring-fencing under which retail banking operations would be carried out by a separate subsidiary within a wider group." ...

Tel  11 Apr 2011

British banks urged to ring-fence retail sections

... it has held off from the more radical options of restructuring the industry, saying a full-blown separation would be costly and could "lose some of the benefits of universal banking".

Instead the sector is facing a call to set up so-called internal firewalls to draw a line between the two.

Lloyds appears to have avoided its worst-case scenario to undo the HBOS takeover, despite now having a uniquely powerful position in the sector - accounting for around 30% of all current accounts in the UK.

However, the ICB made clear it believes Lloyds should offload more than the 600 branches and parts of its mortgage business being divested under current European measures to address competition concerns.

Switching between banks should also be made easier and quicker to allow new entrants to crack the market and help improve competition, added the ICB ...

Ind  11 Apr 2011

Banks top FTSE 100 after ICB Report

Vickers' Interim Report - .pdf

UK banks escape radical restructuring

'Too big to fail'

Banks threaten to leave London ...

Osborne backs ICB on debt-holder 'haircuts'

Knight refuses to face TSC

Banking Commission wants firewall around retail banking

Angela Knight on the cost of regulatory change

Bank review 'will push up cost of borrowing’

Moody's doesn't like the Banking Commission, so it's throwing a spanner into the works in the certain knowledge that Obnoxious Osborne will jump to attention and ignore the Commission's recommendations.

One of the world’s largest credit ratings agencies, Moody’s, said it was reviewing the credit status of British banks and warned that it was preparing to reduce the rating awarded to many institutions ...

Moody’s said up to 18 institutions, including many smaller building societies, could see their debt ratings cut following the review.

The credit ratings agency is then expected to reduce the credit ratings of larger institutions ...

Tel  08 Apr 2011

Nailing the fantasy of a coming recovery

Uncompetitive, dishonest: MPs' verdict on UK banks

Banks that are "too big to fail" enjoy unfair advantages over smaller challengers in a market that is less competitive after the financial crisis, the report said.

The MPs rejected arguments put to them by some of Britain's most powerful bankers, including Bob Diamond, the chief executive of Barclays, and Eric Daniels, who headed Lloyds until earlier this year.

"It has many of the characteristics of an oligopolistic market. They [the bank bosses] certainly understand it very well," said Andrew Tyrie, chairman of the committee.

"It is natural enough that banks should fight their corner on behalf of their shareholders but it is even more important that those trying to protect the consumer and get the best deal for the public challenge them and that is what we have done."

On "free" current accounts, the MPs argued customers in credit were really paying because they were missing out on higher interest elsewhere while more vulnerable customers paid charges that subsidise those in credit.

The committee said that, over a decade after the Cruickshank report called for easier account switching and product comparison the market had hardly changed ...

The MPs called on the Government to make competition part of the remit for the new Financial Conduct Authority ...

Ind  02 Apr 2011

City nervous ahead of bank reform report

Robert Peston

MPs call for tougher policing to shake up banking cartel

Prompted by the financial crisis, the Treasury committee, chaired by Tory MP Andrew Tyrie, has been investigating competition and choice in the banking industry for six-months ...

Mr Tyrie, who has indicated he would support breaking up the partly state-owned banks, RBS and Lloyds, said:

"Competition has been looked at many times over the past 20 years but there has been little progress.

"Our report will be robust and will have radical suggestions to improve banking."

Tory MP Andrea Leadsom ... a former Barclays director, said one way to create new banks would be to break-up those owned by UKFI, the Treasury arm which has stakes in RBS, Lloyds and Northern Rock.

"It's extraordinary that there has been only one new banking license – to Metro Bank – in more than a 100 years.

"There are many ways we could improve competition, and help with the high cost to barriers of entry," she said ...

"For example, we should look at whether the small business lending parts of RBS and Lloyds could be merged into a new bank, or whether RBS should be split into two.

"All options should be looked at including how to encourage new local credit unions or industry sectors to set up their own banks – like modern-day livery companies." ...

Sunday1Morning

They don't need tougher policing, the public need an alternative.

The government should use Northern Rock and make it a People's Bank, run on ethical and mutual lines, where people can put their money and know that any profits will be used to feed back into public services.

Somewhere it is possible to get business loans and mortgages, somewhere where the bottom line isn't how much profit the bank will make.

Once the banks have real competition, they will fall into line as they see their massive profits crash.

Like they did with free banking with Girobank and after the old building societies converted.

The government should be encouraging the setting up of mutuals again, building societies and credit unions, giving people an alternative to the banks will have a salutory effect on their behaviour if they want to keep customers.

Ind  27 Mar 2011

Damian Reece: Bankers' Lackey

Major banks' profits double

Profits made by the major banks have doubled during the past year but the groups still face significant challenges going forward, a report indicated today.

The big five banks - Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland and Standard Chartered - made combined pre-tax statutory profits of £22.2 billion in 2010, up from £11.3 billion in 2009, according to accountants KPMG ...

David Sayer, global head of retail banking at KPMG, said:

"In the current economic environment profitability on mortgages looks likely to fall and it is difficult to see what will take its place ...

KPMG said regulation was set to continue as a "key theme" for banks for sometime yet, as the sector waits for the findings of the Independent Commission on Banking.

Independent  14 Mar 2011

Britain at risk of another financial crisis

In an interview with The Daily Telegraph, Mervyn King ... urges high street banks to take a better, longer term view towards their customers and to stop focusing on the need to “simply maximise profits next week”.

He accuses them of routinely exploiting their millions of customers.

“If it’s possible ... to make money out of gullible or unsuspecting customers, particularly institutional customers, [they think] that is perfectly acceptable,” he says.

The Governor criticises the “weight put on the importance and value of takeovers” and raises concerns that companies with good reputations have been “destroyed” in the search for short-term profits ...

“We allowed a [banking] system to build up which contained the seeds of its own destruction.

“We’ve not yet solved the 'too big to fail’ or, as I prefer to call it, the 'too important to fail’ problem.

“The concept of being too important to fail should have no place in a market economy.”

When asked whether there could be a repeat of the financial crisis, Mr King says:

“Yes. The problem is still there. The search for yield goes on.

"Imbalances are beginning to grow again.”

Telegraph  04 Mar 2011

Banks putting profits before customer

We prevented a Great Depression ...

Banks hoping for return to business as usual

• ... The first, and perhaps most shocking to those in government who had not appreciated it, is that the state has absolutely no control over the payment mechanisms on which our fundamental economic order depends. We had no choice but to bail out banks because they were the only people who could actually facilitate the exchange of money in our economy. Social chaos and major economic turmoil, probably associated with a breakdown in law and order, would have occurred if the banks had not been rescued.



• Second ... the government has almost no control over the money supply in the UK. About 3% of the cash in the UK economy is actually issued by the Bank of England.
  
  The rest is electronic money (that) is created by the commercial banks and not by central government. The commercial banks do as a consequence take the profit from this activity.
  
  Unsurprisingly if they make cash out of thin air and then charge people for the privilege of using it they have, they do during a period of massive monetary growth maximise their profit by the creation of enormous quantities of new money through offering debt ...



• Third, as the banks have fallen over it has become very clear that we might end up with very few banks and a wholly uncompetitive market for their services. This seems undesirable to almost everyone.



• Fourth, and finally, it is very obvious that the banks have been unable to regulate themselves, whether that be with regards to capital adequacy ratios, the payment of appropriate incentives, the appraisal of lending, money laundering (to which many of their tax haven subsidiaries appear to have been oblivious) or any other issue.

Network Banking

... It seems to me that any reform of the banking system must achieve the following objectives:

• 1. The basic payment system must be under the control of the state;



• 2. The state must have control of the creation of all money and must profit from the creation of that money



• 3. There must be sufficient banks in the market to both offer choice to consumers and to prevent any one bank becoming so large that its failure could represent a fundamental threat to the economy as a whole



• 4. The banking system must be better regulated and monitored in the future to prevent a recurrence of the problems that have created the current crisis.

...

Tax Research UK 21 October 2008