Counterparties: Volcker with voltage
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Two years after the endlessly delayedÂ Volcker Rule was first passed, thereâs been a slow, rough convergence in how the world treats too-big-to-fail banks.
Today, George Osborne, the UKâs 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. Â This is the year, Osborne said in aÂ speech, âwhen we re-set our banking system.â In France and Germany,Â something similar is going on: both countries are consideringÂ 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 governmentÂ commissionâs 2011 recommendation, Osborneâs approach, which he calls an âelectrified ring-fenceâ, relies on four elements: the Bank of England will soon take over responsibility as a âsuper copâ for the economy; banksâ trading activities will be severed from their retail lending operations; the UK will somehow go about âchanging the whole culture and ethics of the businessâ; and there will be more choice in a banking system which âverges on an oligopolyâ.
The FT suggests Osborneâs words are aÂ threat; Lex wonders if that threat is mostly empty.Â Reuters quotes a government source saying the move was intended âto send a signal to Europeâ to move faster on reform (it also says Osborne was âbowing to political pressureâ). And theÂ British Bankers Association says a clear separation between trading and banking would create âuncertaintyâ for the industry.
âBehind closed doorsâ, bankers say they are not particularly worried about Osborneâs 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 âabsolutely driven by a sense that Dodd-Frank did not end too big to failâ, a Cato Institute staffer toldÂ Bloomberg. — Ryan McCarthy
On to todayâs links: