Euro rescue could help banks in regulatory battle
By Lionel Laurent and Huw Jones
PARIS/LONDON, May 10 (Reuters) – A $1 trillion rescue package to stabilise the euro could bolster European banks’ negotiating power as they attempt to fight stricter regulatory capital requirements they expect will hurt economic growth.
Europe’s lenders are already significant holders of sovereign euro debt and will be relied upon to buy more state-guaranteed debt as part of the rescue package, which is likely to see them push for extra concessions, analysts said.
“What there needs to be is a realisation among politicians that you cannot legislate and regulate the banks’ profitability away and expect them to keep buying your debts,” MF Global bank sector analyst Simon Maughan said.
Proposals to tighten bank capital requirements by the Basel Committee on Banking Supervision, due to be implemented by the end of 2012, have attracted criticism from banks, including BNP Paribas, Deutsche Bank and RBS.
The new euro rescue package, which will also see the European Central Bank buying euro sovereign debt, could support the banks’ view that the recovery is already fragile enough without extra regulation.
“This highlights how fragile the recovery is … We know that Europe is in a tight spot and the last thing you want to do is put undue further pressure on the banks,” said a London-based financial analyst.
Is regulation too risky to leave to politicians? EU banks think so
By Huw Jones
Put regulation in the hands of politicians and, well, it becomes politicised.
That, anyway, is what Europe’s new kid on lobbying block, the Association for Financial Markets in Europe (AFME’s), told the Reuters Regulation Summit about EU plans to crack down on opaque derivatives markets by insisting on central clearing of standardised contracts, trade reporting and even exchange trading. (more…)
Bundesbank must remain independent, Zeitler says
BERLIN, April 11 (Reuters) – The Bundesbank will not agree to any new national financial supervision structure that might impinge upon its independence, a board member of the German central bank said in a newspaper interview published on Sunday. (more…)
BREAKINGVIEWS-Far too little stress in U.S. bank reform
– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
By Rob Cox
NEW YORK, April 6 (Reuters Breakingviews) – Improving U.S. bank regulation may call for a little more stress. The disclosure and discipline imposed by the Federal Reserve’s stress tests of big banks a year ago drew a line under the crisis. The tests separated sheep from goats and led to tens of billions of dollars of new capital being raised. It’s a shame that stress tests aren’t becoming an annual event.
The tests have been overshadowed by the Troubled Asset Relief Program. After all, that $700 billion plan to recapitalize the banking system kept institutions like Citigroup, Bank of America and Morgan Stanley from going under. But the TARP scheme was fraught with conflicts still bedeviling the debate over reform, including the problem of bankers paying themselves handsomely on the back of taxpayer bailouts. As a result, few are calling for a repeat of the TARP experience.
But the Fed’s stress tests have turned out well. The central bank-led analysis of 19 financial companies last April compared their capital strength on a consistent basis across the industry. That, in turn, led to the formation of some $185 billion of new private banking capital, priced accordingly. It also set a precedent for much-needed interagency cooperation on regulation.
Despite the success of the Supervisory Capital Assessment Program, as the scheme was called, neither of the financial reform bills wending their respective ways through the House of Representatives and the Senate argues for making stress tests an annual tradition. That’s a shame.
At their most basic, the stress tests afforded investors their first-ever convenient opportunity to judge the ability of systemically important financial firms to confront a host of adverse economic conditions. Massive financial institutions and regional banks were thrown into the mix alongside credit card issuers, auto financiers and Wall Street firms.
Thanks for posting this one! It did help me a lot!
Bank Reviews
UK lawmakers seek radical, not rushed bank reform
By Huw Jones LONDON, March 29 (Reuters) – Radical and carefully thought reform is needed to shield British taxpayers from having to bail out troubled banks again, a UK parliamentary report said on Monday. (more…)
Bernanke defends Fed small bank supervision role
By Mark Felsenthal WASHINGTON, March 17 (Reuters) – Top U.S. central bankers present and past on Wednesday joined forces against a plan to strip the Fed of its oversight of smaller banks, saying the knowledge it gains from that role is vital to monetary policy. (more…)
UK move to limit bank branches irks global lenders
By Kirstin Ridley
LONDON, Feb 17 (Reuters) – A quest by British regulators to protect local taxpayers by pruning the branches of global banks is riling the industry and risks running roughshod over a principle of free movement within Europe.
Britain’s Financial Services Authority (FSA), which unilaterally published tough new liquidity rules for banks last year, is keen to stop banks operating in London from setting up branches. It prefers subsidiaries, which are easier to police.
This push for “subsidiarisation” has gathered steam since the collapse of Icelandic banks in 2008 left UK depositors empty-handed, shattering a European principle that national regulators will protect the interests of international clients.
While bankers have dubbed this drive “simplistic” and “troubling”, lawyers note the FSA needs to leapfrog a so-called passporting rule, under which banks are allowed to set up branches across the 33-nation European Economic Area (EEA).
“One … has to question whether there would, in fact, be sufficient appetite to agree such a change among the smaller (EU) member states, who could see a risk of being shut out of the major European financial markets,” notes Ben Kingsley, a partner at London law firm Slaughter and May.
But analysts say the FSA is undeterred in its determination to ensure banks hoard cash in their international businesses, which could be expensive for both lenders and their customers — who will ultimately bear any added costs.
Bank reform may have $220 billion global capital hit – analysts
LONDON, Feb 17 (Reuters) – Top global banks will need an extra $221 billion of capital and see annual profits slump by $110 billion if all proposed regulations to reform the industry are brought in, leading analysts said on Wednesday.
If all the initiatives from regulators are implemented it would cut the average return on equity to 5.4 percent from 13.3 percent next year, hurt economic growth and raise costs for bank services, JPMorgan analysts warned.
“The cumulative impact of all the proposed regulation suggests that there is a real risk that we may move from a system that was under regulated to one that is over regulated and that that could cause a significant increase in lending costs and a negative impact on the economy,” Nick O’Donohue, head of research at JPMorgan, said in a research note.
The capital needs of banks would be $221 billion higher in the extreme event that all the reforms were brought in.
British banks alone would need $91 billion, other European banks would need $86 billion and U.S. banks would need $44 billion, JPMorgan estimated.
The most impacted banks could be Britain’s part-nationalised Royal Bank of Scotland and Lloyds, it said.
Pretax profits among the global banks would be cut by $110 billion. Net income in 2011 would more than halve to $74 billion, JPMorgan forecast.
Bank of England’s King says UK, US closer than EU on regulation
(Updates with more quotes, details from report)
LONDON, Feb 12 (Reuters) – Britain and the United States are more convinced of the need to force banks to hold more capital than some big European nations, Bank of England Governor Mervyn King told the Council for Financial Stability last month.
The minutes of the meeting between the BoE, the Treasury and the Financial Services Authority on Jan. 14, published on Friday, showed King felt the task of getting nations to agree to stricter rules for banks “should not be underestimated”.
The G20 group of developed and emerging nations has been looking at ways to strengthen regulation after the credit crisis but there have been concerns that a show of unity at the height of the crisis may fall apart as the global economy recovers.
FSA Chairman Adair Turner told the meeting that, while Britain had pushed hard to implement internationally-agreed standards for remuneration in the financial sector, others were dragging their feet.
The minutes showed the FSA had forced some banks to change their pay plans and said “potential issues could arise if other countries failed to follow the UK’s implementation of the Financial Stability Board code in time for the 2010/11 remuneration round”.
“There needs to be an internationally agreed practical way to further the commitments made at the G20 meeting,” the minutes said.
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