FACTBOX-Global reaction to Obama’s planned rules for banks

By Reuters Staff
January 22, 2010

Jan 22 (Reuters) – Here is some reaction from around the world to U.S. President Barack Obama’s proposals to limit financial risk taking.

EUROPEAN GOVERNMENTS

GERMAN FINANCE MINISTRY SPOKESMAN MICHAEL OFFER:

“We see the new proposals as a helpful suggestion for the continuing discussions on an international level. And we’re obviously aiming to find a solution to the problem of the ‘too big to fail’ issue.”

“In America, the polarity between Wall Street and Main Street is more marked than with us. But we’re open to this and ready to consider them in the framework of the international discussions.”

Offer added that Germany would present its own proposals on improving banking regulation and that these would be discussed in the framework of the Group of 20 nations.

FRENCH ECONOMY MINISTER CHRISTINE LAGARDE:

“I think this is a very, very good step forward,” Lagarde told Europe 1 radio station.

Asked if France should imitate the move, she said: “Actually it is more the opposite that is happening … I am delighted that president of the United States is following our lead.”

“They see that regulation, which was a taboo word that was difficult to use in financial circles in the United States, is vital to contain and limit banking excesses.”

BRITISH TREASURY MINISTER PAUL MYNERS TO REUTERS INSIDER TV:

“He’s developing a solution to what he sees as the American issues, we’ve already taken the necessary action in the UK.”

SPOKESMAN FOR BRITISH PRIME MINISTER GORDON BROWN:

“It’s directionally something the prime minister feels very comfortable with,” the spokesman told reporters.

Brown believes the world needs to mitigate against too much risk taking in the financial sector and that different countries have to deal with their own circumstances in different ways, the spokesman said.

GEORGE OSBORNE, FINANCE SPOKESMAN FOR BRITISH OPPOSITION CONSERVATIVES (shown by opinion polls winning election due by June):

“President (Barack) Obama has created a lot of space for the rest of the world to come up with what I think would be a sensible system of international rules and agreements that creates a strong and competitive City of London but also a safely regulated one,” Osborne told BBC Radio 4.

“I don’t want to do things that unilaterally damage the City of London, or unilaterally damage British banks.”

“If we need new rules they should be agreed internationally and I think the G20 meeting in South Korea in a few months time is a good place to try and map out those rules.”

“There are plenty of investment banking activities that are serving the needs of customers and clients.”

“It’s the riskiest end of investment banking, it’s when they are making huge bets with the bank’s own money and the bank’s balance sheet that I think we need to separate from retail banking.”

SPANISH DEPUTY PRIME MINISTER MARIA TERESA FERNANDEZ DE LA VEGA

“We respect the views of the United States because we share the same views as to why the crisis started and the tools needed to get out of it,” she told Spanish television.

“Every country should take its own measures because each one is different. In Europe we are working towards a policy of financial control and any measures taken will be formed by consensus.”

SPANISH GOVERNMENT SOURCE:

“I don’t think such measures would have much application in Spain, given that proprietary trading is not a very generalised practice.”

“One thing is the measures as announced and another will be what goes ahead.”

“What would be logical would be for this kind of measure to be discussed via the G20 in a coordinated manner, and what I do think is positive is the philosophy of the reform, which makes the distinction between investment banking and retail banking.”

DUTCH FINANCE MINISTRY SPOKESWOMAN:

Said the ministry supported the “general aim” of Obama’s “ambitious” proposals but cast doubt on whether they would be possible to implement.

“In general, we think that it will be difficult to regulate the market and exclude or separate activities or institutions.”

“We think it is more important to set incentives right (adequate capital standards, prudent compensation schemes) to prevent risks from emerging.”

OFFICIAL INVOLVED IN GLOBAL REGULATION PROCESS:

“Many in Europe were suprised yesterday,” said the official, who declined to be named.

“We saw the UK push ahead on its own with its own liquidity rules and now we have this from the United States. Nobody knows the details or whether other countries may follow. This is creating regulatory confusion.”

ANALYSTS:

STEPHEN POPE, CHIEF GLOBAL EQUITY STRATEGIST AT CANTOR FITZGERALD IN LONDON:

“I think you will find that a lot of institutions have already made quite substantial reductions in their proprietary trading because as a house we have notice the decline in that type of business.”

“If you look across the world, even if they have certain branches that have operations in the United States, they are not so prone to rely upon propriety trading for their income. You will find that it will not affect them so much.”

CHRIS TURNER, HEAD OF FX STRATEGY AT ING IN LONDON:

“People were initially slightly shocked by the Obama plan and by the implications of what he was suggesting, but there is a question of how quickly it will be implemented.”

“It also shouldn’t derail the Asian-led global recovery, which is good for commodity-linked currencies.”

PETER FERTIG, CONSULTANT WITH QUANTITATIVE COMMODITY RESEARCH:

Said that while gold and other commodities had overreacted to the Obama news: “Uncertainty about U.S. financial system regulation is a factor which might be in the market for some time, until there are concrete details.”

NOMURA STRATEGIST CHARLES DIEBEL:

“The witch hunt against the banks continues and while that may be justified in terms of lowering risk, it’s not good for P&L and restricts the level of economic activity so it’s good for bonds.”

MARC OSTWALD, STRATEGIST AT MONUMENT SECURITIES:

“Gilts continue to benefit from some pretty mixed up market thinking about Greece and that kick in the teeth for banking sector shares from Obama. People have taken huge umbrage.”

STEVE WHITE, DIRECTOR AT SYDNEY-BASED TREASURY ADVISORY FIRM NOAH’S RULE:

“The combination of China tightening and reducing U.S. banks’ lending ability may limit growth prospects. If people continue to deleverage, it will reduce the potential for growth and commodity demand.”

SIMON MAUGHAN, ANALYST AT MF GLOBAL:

“The biggest risk is that we’re under a cloud of uncertainty all the way through to the U.S. mid-term elections, which is effectively for the whole year.”

COMMERZBANK ANALYSTS’ NOTE:

“We should really question why the plans have not put more pressure on the dollar – the reason is probably the uncertainty surrounding the actual implementation of such measures.”

GERHARD SCHWARZ, HEAD OF GLOBAL EQUITY STRATEGY AT UNICREDIT IN MUNICH:

“We have to digest that the reception in the last trading session in the U.S. to the Obama plan was very negative in the financial space and this has provoked some risk aversion across the board.”

BOFA MERRILL LYNCH ANALYSTS’ NOTE:

“Given the lack of clarity over whether those proposals will be implemented, and if so, in what form and over what timeframe, we see risks that uncertainty will hang over the market structure stocks,” they say.

“What is clear to us is that there will be more noise on this front between now and November as U.S. politicians lobby for popular support ahead of midterm elections.”

HELVEA BANKING ANALYST PETER THORNE:

“The really interesting thing is what Europe is going to do, and I can only think they will copy Obama.”

“These measures are not going to be restricted to the U.S., the anger that Obama and others have expressed is reflected in Europe.”

NOMURA ANALYST RAUL SINHA:

“New regulations are being proposed thick and fast and the industry faces major uncertainty from these.”

SIMON WILLIS, ANALYST AT NCB STOCKBROKERS:

“Obama’s proposals are a return to Glass-Steagall in all but name.”

LAWYERS

MICHAEL MCKEE, FINANCIAL LAWYER, DLA PIPER:

“It puts Europe in a crossroads situation. They have a choice to make. There will be those, particularly on the left, will be quite supportive but Europe has more to lose. The universal bank model is more prevalent in Europe and European markets have a greater need for the liquidity that flows from the universal bank model because our equity markets are less deep. In one sense it need not derail many of the things agreed at the G20 but it does alter the dynamic. The proposals were to some degree premised that most institutions would be operating a universal bank model but it does not necessarily alter what you do in capital changes as many are focused on the trading book. I don’t think it has a major impact on capital side of the proposals or on remuneration. It might mean most of the G20 proposals can still work even if you have a Glass-Steagall type approach,” he said, referring to the Depression-era U.S. law that separated retail and investment banks.

SIMON GLEESON, FINANCIAL LAWYER, CLIFFORD CHANCE:

“The proposed changes don’t make much sense as pure regulatory proposals — if the financial system as a whole gets into trouble you have to rescue it whether it consists of ten big banks or a hundred small ones.

“It’s a bank’s holdings in hedge funds and PE funds which have provided much-needed stability when the value of other assets was swinging around like a flag in a gale.

“Europe is already heading towards a separation of commercial and investment banking through the Basel/Capital Requirements Directive process. However the big question is whether we will get away with a separation within groups, that is we restructure European banks into a commercial subsidiary and an investment bank subsidiary, similar to the existing U.S. model, or whether it will be necessary to break bank groups up completely into deposit-taking commercial lenders and “merchant banks” – this is my “back to the future” argument.

Obama seems to want to go all the way towards a complete break-up, and this move must make it more likely that Europe and the G20 will follow this line.” ((Compiled by Treasury Desk, London +44 207 542 7917))

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