Counterparties: Volcker with voltage

February 4, 2013

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Two years after the endlessly delayed Volcker Rule was first passed, there’s been a slow, rough convergence in how the world treats too-big-to-fail banks.

Today, George Osborne, the UK’s chancellor of the exchequer, announced a series of new powers that will force banks to separate their trading and lending operations — or face being broken up.  This is the year, Osborne said in a speech, “when we re-set our banking system.” In France and Germany, something similar is going on: both countries are considering Volcker-ish proposals to that would force banks to silo off everyday banking from things like prop trading and financing hedge funds.

Building off of a government commission’s 2011 recommendation, Osborne’s approach, which he calls an “electrified ring-fence”, relies on four elements: the Bank of England will soon take over responsibility as a “super cop” for the economy; banks’ trading activities will be severed from their retail lending operations; the UK will somehow go about “changing the whole culture and ethics of the business”; and there will be more choice in a banking system which “verges on an oligopoly”.

The FT suggests Osborne’s words are a threat; Lex wonders if that threat is mostly empty. Reuters quotes a government source saying the move was intended “to send a signal to Europe” to move faster on reform (it also says Osborne was “bowing to political pressure”). And the British Bankers Association says a clear separation between trading and banking would create “uncertainty” for the industry.

Behind closed doors”, bankers say they are not particularly worried about Osborne‘s fence. Much scarier for the banking industry is a growing chorus that’s arguing big banks may need to be broken up — a group which includes bank critics like Michael Lewis, free-market adherents like Alan Greenspan, and ex-bankers like Sandy Weill. In the US, new rules on big banks are being “absolutely driven by a sense that Dodd-Frank did not end too big to fail”, a Cato Institute staffer told Bloomberg. — Ryan McCarthy

On to today’s links:

EU Mess
Spain’s prime minister is embroiled in a scandal over secret cash payments – Telegraph

Long Reads
The crazy rise in health care spending is good for the economy — but only in the short-term – National Journal

Bold Moves
The economics of Netflix’s new $100 million show – Atlantic Wire

Michael Lewis: financial institutions should be “so dull” that no one wants read about them – New Republic

Level Playing Fields
Organized crime fixed 680 soccer games – Guardian
If you can buy a gun, you should probably be allowed to bet on the Super Bowl – Felix

8 good questions for Mary Jo White – Occupy the SEC

Peak Podcast
Carlyle co-founder releases debut podcast – Carlyle

Says Science
Dumb individuals can become smart crowds – Ed Yong

Canadians are officially penniless – Canadian Press

Richard III delivers definitive, yet lifeless, performance – NYT

Conde Nast’s intern’s big learning experience was learning what it’s like to be an intern in the magazine business – NYU

America has averaged one mass murder per month since 2009, study says – Brad Plummer

The good news from Japan – Paul Krugman

Growth Industries
“Unemployed Reporter Porter”, it’s as “dark and bitter as the future of American journalism” – Hartford Advocate

A reminder that Wall Street hates you – Aleph Blog


Department of Justice will file civil suit against S&P for CDO ratings – Reuters

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