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Let the Fed regulate

By John M. Berry

John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.

Politics is trumping common sense in Congress as Republicans and Democrats keep heaping abuse on the Federal Reserve. As a result, they could end up adopting an unworkable, risky overhaul of financial market regulation. 

Senator Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, is leading the parade with his plan to strip the central bank of virtually all its oversight of commercial banks.

  ”I really want the Federal Reserve to get back to its core enterprises,” Dodd said. In recent years, the Fed’s regulation of bank holding companies and consumer lending “was an abysmal failure,” he charged. 
 
No, the Fed didn’t cover itself with glory in some of its regulation and supervision, but neither did any of the other financial regulatory agencies. Moreover, the most serious failures last year involved investment banks overseen by the Securities and Exchange Commission, not the Fed.

Has the moment passed for bank reform?

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LEHMAN/A year on from the collapse of Lehman Brothers and there is plenty being written and broadcast about the lessons, the winners and losers and where we go from here.

Amidst all the noise, a relatively short (765 word) commentary from Barbara Ridpath who is head of the International Centre for Financial Regulation (ICFR) — a think tank set up to shape regulatory cooperation and best practice – makes some worthwhile points:

Shock! Banker says banks must shrink

One of the most depressing, though predictable, aspects of the financial crisis has been the reluctance of senior bankers to publicly debate the industry’s shortcomings.

Though there has been plenty of finger-pointing in private, bankers have refrained from discussing their own – and each other’s – failures in public. The result is that the debate about the future of banking has been almost entirely conducted by non-bankers.

Shock! Banker says banks must shrink

One of the most depressing, though predictable, aspects of the financial crisis has been the reluctance of senior bankers to publicly debate the industry’s shortcomings.

Though there has been plenty of finger-pointing in private, bankers have refrained from discussing their own – and each other’s – failures in public. The result is that the debate about the future of banking has been almost entirely conducted by non-bankers.

Ackermann makes half-baked case for reform

In the debate about the future of financial regulation, most senior bank executives have been notable by their silence, preferring to lobby behind the scenes rather than argue their case in public.

 

So we should welcome Josef Ackermann’s effort to publicly put the case for big banks. In a long screed published in today’s FT, the chief executive of Deutsche Bank makes the argument that cross-border financial institutions are important for the success of the global economy, and that cutting them back to size would be a mistake.

from Margaret Doyle:

IASB sticks to its fair value guns

LONDON, July 15 (Reuters) –David Tweedie, chairman of the International Accounting Standards Board, has responded to demands that he revise the controversial standard on financial instruments by strengthening controversial “mark to market” accounting. He should be careful he does not derail progress towards global accounting standards in the process.

The existing standard, IAS39, allows banks and insurers to classify financial instruments and measure impairment in many ways. Tweedie wants just two measurement bases – amortised cost and fair value -  and one impairment method for amortised cost.

Defining financial stability

By my count, the British government’s new paper setting out its plans for overhauling the banking industry mentions the words “financial stability” 141 times in its 147 pages. So it comes as some surprise that the document makes no attempt to define the phrase.

The paper talks at length about restoring, maintaining and protecting financial stability. Its main proposal is to create a Council for Financial Stability, to be chaired by the Chancellor. Meanwhile the Financial Services Authority is to be given explicit responsibility for maintaining the stability of the financial system rather than just regulating individual banks.

from Margaret Doyle:

COLUMN –One cheer for Darling’s reform: Margaret Doyle

Margaret Doyle is a Reuters columnist. The opinions expressed are her own

By Margaret Doyle

LONDON, July 8 (Reuters) – Alastair Darling has ignored the first rule of holes: if you’re in one, stop digging. He could have produced a few motherhood-and-apple pie reforms of the banking system, to give the impression of activity. Instead, he has dug in, proposing an upgrade of Britain’s failed “tripartite” system of regulation.

No one expected him to admit as much, but the arrangement that split responsibility between the Treasury, the Bank of England and the Financial Services Authority (FSA), was doomed from the start.

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