In the wake of the widespread chaos that accompanied the bankruptcy of Lehman Brothers last September, regulators have sought to find a better way to unwind global financial giants. One approach is that the banks themselves should prepare for their own orderly demise -- a kind of "living will".

That idea has been gathering steam of late. The G20 group of finance ministers and central bankers meeting in London over the weekend agreed to require "systemic firms to develop firm-specific contingency plans."

The concept has wide appeal. The crisis has convinced politicians and regulators of all colours that even large financial institutions must be allowed to fail without imposing a huge burden on taxpayers. Many bankers see such a regime as a preferable alternative to more intrusive regulation.

However, drawing up a detailed "living will" is easier said than done.

Simon Gleeson of Clifford Chance argues that it is more important for regulators and legislators to establish a cross-border crisis-management and resolution regime than it is for individual firms to prepare for their own demise.

The mandate of the Financial Stability Board (FSB), the international body comprising finance ministries, central banks and financial regulators, was recently expanded to include contingency planning for cross-border crises. It published a series of relevant principles in April. However, as the Institute of International Finance (IIF) noted, it is "clear from the high-level nature of the principles and the aspirational language [that] there remains a lot to be done."

The IIF is calling for the FSB to develop a convention on crisis management that would include detailed rules, including on early intervention. It also wants the FSB to run cross-border crisis simulations of the sort routinely carried out by domestic regulators.

But crisis-handling is only half the battle. Once a bank collapses, national priorities currently kick into action, not least because the responsibility for a bail-out rests with elected finance ministers rather than the technocrats who run financial regulators or central banks.

Politicians' instincts will always be to minimise the harm to their own depositors, creditors and banking systems, regardless of the global cost.

Solvency law reinforces these nationalistic instincts. Like financial markets law, it is bounded by national borders. Administrators allocate the bank's remaining assets among local creditors, regardless of the claims of creditors overseas. Indeed, they are often prohibited from cooperating with their foreign counterparts, even if they wanted to.

Solvency law is also wholly inadequate to the task of unwinding huge, interconnected financial firms.

One solution, as floated by Adair Turner, chairman of Britain's Financial Services Authority, would be to require international banks to simplify their corporate structures. But this is likely to be resisted by the banks as it would eradicate all the efficiency benefits of a cross-border structure, as well as exposing tax-minimising schemes.

Instead, the IIF advocates that governments agree criteria for burden-sharing ahead of another crisis. A common fund could be established across borders, though the IIF sensibly recognises that the political challenges would be huge.

More pertinently, the IIF advocates that banks should be subject to a special resolution regime separate from those of regular commercial companies. Central to such a regime would be a cross-border agreement that governments could step in and override normal insolvency practices in order to avoid systemic disruption of the banking and payments systems.

Some of the issues posed by the financial crisis are intellectually difficult; some politically challenging. Devising a legal framework for "living wills" manages to be both. Any solution for dealing with a future Lehman remains a long way off.

The Year Since Lehman -- related columns:

Banking? Keep it simple, stupid

A year on, it's still a housing story

Most buyers are happy if their putative purchase gets cheaper. However, Dublin's government is watching the on-off liquidation of developer Liam Carroll's assets with trepidation.

Dublin has committed to acquiring property loans with a face value of some 90 billion euros from the country's beleaguered banks at a so-far unspecified discount to establish a "bad bank". The idea is that by removing such loans to the new National Asset Management Agency (NAMA), the banks would be free to start lending again.

In principle, you might think that ministers would want that discount to be as fat as possible. A fire sale of the property assets of one of Ireland's biggest developers should show just how far prices have really fallen.

However, opposition politicians believe that the government wants to overpay for the loans. They have fixed on finance minister Brian Lenihan's promise that the state would pay the "long term economic value" rather than today's depressed market price of the underlying loans.

Richard Bruton, finance spokesman for the Fine Gael party, warns that "taxpayers will be forced to overpay the banks for toxic developer loans. Rosy and baseless optimism about a recovery in property prices can hobble the public finances for a generation."

Moreover, the opposition is worried that the banks may be colluding in trying to keep developers like Carroll afloat long enough to offload their loans into NAMA. There is plenty of evidence that banks are rolling up interest on developers' loans rather than pulling the plug.

The case of Carroll is instructive. Only one of his eight lenders has pushed to have a liquidator appointed. ACC Bank, which is owed "just" 136 million euros, out of more than 1 billion (Carroll's entire empire is estimated to owe 2.8 billion), pulled the plug. Owned by Rabobank, which has decided to exit the Irish market, it has little long-term interest in playing a longer game.

The other seven banks did not pursue Carroll's companies through the courts despite underlying valuations that a High Court judge described as bordering on the "fanciful".

Bruton is worried that the bigger banks will try to buy off smaller banks like ACC in order to avoid a court bankruptcy process that will reveal the true value of Irish development sites. The mainstream banks' actions are entirely sensible.

Ireland's property market is moribund and the only buyer appears to be the government. Even Patrick Coveney, chief executive of Greencore, a food group that had planned to develop old sugar plants in rural towns (alongside Carroll) now says, "You would be insanely optimistic and absolutely naïve to think there's now a market for building out the sort of developments that were envisaged 18 or 24 months ago."

There is even method in Lenihan's madness. The government has been pressed into a series of measures in an attempt to shore up Ireland's financial sector, from a 2-year guarantee of the system's liabilities, to the nationalisation of Anglo Irish Bank and the capitalisation of AIB and Bank of Ireland, the two big banks.

If Lenihan forces the banks to take too big a haircut, he may be forced to take them -- and their bloated loans -- onto the public sector balance sheet. With Ireland's fiscal deficit running well into double digits, and its credit rating under threat, the country can ill-afford this.

Lenihan has the support of the Irish Association of Investment Managers. It s head, Frank O'Dwyer, said, "I strongly believe that the Department of Finance and agency understand that, while they have to be fair to the taxpayer, the key audience is international financial markets. An excessive haircut, with any taint of political motivation, any sense of "let's stick it to these guys", would erode confidence."

O'Dwyer is doing exactly what he should be -- defending the interests of his members, who manage about 300 billion euros, which includes big shareholdings in the banks.

However, he will find it hard to define what an excessive haircut might be. One economist reckons that house prices could fall by as much as 80 percent in real terms. He added that there could be more houses destroyed than built over the coming years.

Others like to draw historical parallels. One property website cites the example of Regency Dublin. Much of the city's fine Georgian squares were built speculatively during the 1790s.

Houses in Mountjoy, then a particularly grand square, sold for 8,000 pounds in 1791. After the Act of Union between Britain and Ireland consigned Dublin to backwater status, they were changing hands for just 2,500 pounds. And half a century after that, as the famine raged in 1849, they were worth a paltry 500 pounds.

Lenihan may find that even the long term will not be long enough to restore property markets to the level he wants.

(Margaret Doyle owns shares in Bank of Ireland)

(Photo: Reuters/Luke MacGregor)

UBS, Switzerland and the United States can all claim a sort of victory from the settlement on Wednesday of their tax dispute.

UBS gets to avoid a fine that -- according to the Swiss justice minister -- would have threatened its existence. The Americans get the details of some 4,450 accounts that they say have held up to $18 billion, on which fat taxes may be payable. And the Swiss get to draw a line under a threat to their fundamental banking secrecy.

Even so, there will be many who want to keep their financial affairs private who will look for other homes for their cash.

The basics of the deal are as follows. The U.S. will drop its "John Doe" summons that looked for the names of as many as 52,000 Americans with accounts at UBS. This had prompted the Swiss to threaten that they would seize UBS's data rather than accede to what they saw as a fishing expedition that they said would break Swiss law.

The Americans now say they were never looking for so many accounts, which would include many law-abiding citizens.

Instead, the Swiss will hand over details of 4,450 (the Americans say it could be more than 5,000) accounts of Americans at UBS. The bank, which is the world's second-largest wealth
manager, will write to affected account-holders urging them to take part in an American tax amnesty, if appropriate.

The Americans gain twice over. First, the affected account-holders will, unless they are stupid, cough up any outstanding tax before the amnesty expires on Sept 23. Anyone with accounts at other foreign banks is also likely to put their affairs in order before Uncle Sam forces them to. Moreover, Americans will in future will careful to comply with U.S. tax law given the reach of the U.S. justice department.

For the Swiss, the chief attraction of this deal is that it allows them to claim that bank secrecy is upheld. After all, they already had agreements in place allowing an exchange of information in the case of suspected tax fraud. They can say that handing over these names is nothing new, but few will be convinced.

There is no doubt that the case, especially when allied to UBS's near-death experience following the credit boom, has tarnished Switzerland's image of solidity and respectability. There are new centres, like Singapore, offering discreet banking. They will grow at the expense of the Swiss incumbents.

Has London's residential property market bottomed out?

This question has a particular resonance for my husband and me. We are in the middle of selling our London flat. So, unless we buy again immediately, we will be short London property.

Over the longer term, British, and especially London, residential property has been a spectacular investment. We can thank strict planning laws, tax advantages to home ownership and the wealth of the City.

However, in the short term, renting appeals. First, we can try out a neighbourhood that makes my daily schlep to Reuters' office in Canary Wharf more bearable.

Moreover, this is--for now at least--a renters' market. If we bought a house, it would be to live there, but it is always instructive to work out the rental yield to see whether it offers good value.

We looked at what appeared to be a great buy - a reasonably-sized house in central London that we could actually afford.  I ran the numbers. I knew the rent, but I had to make assumptions about how much the house would cost. First - would the seller accept a low-ball offer from newly chain-free buyers? Second, how much would we have to shell out for a lease extension (one of the banes of the London market). And how little could we get away with to update its tired decor?

Depending on the answers to those questions, the yield ranges between 2.75 percent and 3.75 percent gross. Once you make reasonable assumptions about voids (say, 4 weeks a year) and an agent's letting costs (say 11 percent plus value-added tax at 17.5 percent), you are looking at yields of 2.2 percent to 3 percent. And that is before considering the other costs of ownership--the insurance, the ongoing maintenance, the surprise roof leak, or whatever.

Now, you could say that those returns look OK in a world where the base rate is 0.5 percent. But the base rate and the rate at which you and I can borrow, dear reader, are two different things. Our mortgage broker told me that, even with a fat deposit, one of the best 2-year fixed rates we could get would be 4.69 percent, or almost 10 times base rate. Were we buying to let, the rate would doubtless be higher. (Admittedly, I have heard that you can get better-than-advertised deals by negotiating directly with your bank).

So, we could end up paying someone 2.5 percent to live in our home. That gap could increase as base rates rise, as they inevitably will.

Of course, in the past people have funded ongoing property costs because they expected house prices to rise. However, previous property cycles show that they can take several years to play out.

Moreover, the tax advantages of home ownership are no longer what they were. The stamp duty on properties costing more than 500,000 pounds is 4 percent. True, there is no capital gains tax (CGT) on "principal private residences", ie the home you live in. However, CGT has also been slashed, from 40 percent to 18 percent. And stamp duty is paid on the way in, while capital gains tax is paid only on gains made.

Let's say you buy a property for 500,000 pounds. That costs 20,000 pounds in stamp duty. However, you could make a gain of 111,000 pounds, (of which 20,000 pounds is 18 percent) or around 130,000 after allowances, on that 500,000 invested elsewhere and pay the equivalent amount in CGT. That equates to a 22 percent return. And, if you buy bonds or equities you can take small gains every year to minimise the tax bill.

There are two good financial arguments for buying. The first, right now, is that while the banks might charge us 4.69 percent to borrow, we will struggle to find anyone to pay us more than 2 percent net of tax on our savings, and we would probably have to lock it up to get even that. This would take away some of the advantage of being a chain-free buyer in this market.

Second, if inflation returns, property tends to be a good hedge.

Helpful comments from other observers of the London market are very welcome.

LONDON, Aug 13 (Reuters) - As stock markets rally, a chief executive's thoughts turn to getting the government off the shareholder register.

The strongest U.S. banks have already shrugged off the TARP, with its tiresome restrictions on executive pay. In Britain, Lloyds Banking Group has toyed with a jumbo capital raising as a way off the hook of the British government's fiendishly complex asset protection scheme.

In the Netherlands too, the financial sector is looking to shrug off the bonds of state assistance. Dutch insurer Aegon is the latest with a plan to pay back government loans.

However, wriggling out altogether won't be easy. The Dutch government has structured its rescue operation so that recipients have to pay a hefty tax to get out altogether.

The Dutch state lent Aegon 3 billion euros last October during the worst part of the crisis. When Aegon repays the money it has to pay a 50 percent surcharge, turning 3 billion into 4.5 billion euros. The surcharge doesn't change whether Aegon keeps the money for one year or 20. And there is no final redemption date on the loan.

This may seem an odd structure as it seems actively to discourage recipients from repaying the money early. But there is some method in The Hague's madness. Finance is a strategic sector for the Dutch government. It wanted to ensure that financial firms requiring assistance took it for long enough genuinely to repair their balance sheets.

Why is Aegon so keen to repay this perpetual zero coupon capital, one might ask? Well, it is only zero coupon so long as Aegon doesn't pay its shareholders a dividend. If it does the loan bears interest at 8.5 percent.

So the government has put some grit in Aegon's shoe. At some point, then shareholders are going to agitate for it to repay the funds, penalty or no penalty, so that they can receive the income for which they hold insurance stocks.

Aegon isn't yet in a position to liquidate the loan entirely. It needs central bank approval to do so and this probably wouldn't be forthcoming for the full amount.

But it does want to take advantage of a wrinkle in the agreement. This allows it to repay 1 billion of the 3 billion euros without payment of the 50 percent premium. It is only allowed to take advantage of this if it does so before the end of this year. It will have to pay interest on this tranche, but even so that will only force it to pay 1.13 billion euros -- rather than 1.5 billion euros.

The requirement for central bank approval explains why Aegon is raising 1 billion euros through the markets. The authorities can hardly argue that Aegon is denting its solvency ratio, even if it had a solid 3.5 billion euro buffer above the level that it needs to retain an "AA" credit rating as at the half year.

Aegon's case will be watched closely by its homegrown rival, ING. Jan Hommen, its newish chief executive, said that the bancassurer is reviewing its strategic options with a view to repaying its 10 billion euro loan from the Dutch government.

It also faces an 8.5 percent coupon if it resumes paying dividends. Hommen indicated to Reuters that he would hope that the terms of the loan might be amended. One option could be that ING would offer to repay the state less sooner, rather than more later.

Maybe the government will go for this. But it seems to have structured its rescue programme quite smartly. It has both given recipients assistance on terms that give them some breathing space to restore themselves to health.

But the exit fee is set high in order that both taxpayers feel that they are getting a reasonable whack, and to discourage financial institutions from flipping out of the support cheaply -- something that has caused enormous public angst in the United States.
You can read some of Margaret's latest columns here.

(Photo: Reuters)

Controversy and running RBS go hand in hand. Stephen Hester replaced Fred Goodwin as chief executive of RBS and is now in hot water himself over his incentive pay deal. The chief executive of the state-controlled bank could be paid 9.6 million pounds over three years if the share price (currently 44p) reaches 70p. However, he seems to have so little faith in the shares reaching that level that he has offloaded 1,264,565 shares since last November at prices between 28.5p and 48p, yielding just over 464,000 pounds.

When  unveiling first half results last week Hester asserted that "We have a strong plan in place that I believe can get us to where we need to be by 2013," which presumably includes recovery in a share price still languishing more than 90 percent off its peak.

The official guff goes that Hester was granted shares, in tranches, when he joined RBS in lieu of those he would have received at British Land. Under British tax law, the awards are treated as income and so Hester sold some of the shares granted "to meet an immediate income tax and national insurance liability."

In doing so, Hester can claim to be following best financial practice in matching a liability with the corresponding asset. Finance theory also says that investors should not put all their eggs in one basket.

Moreover, senior managers are highly circumscribed in when - or why - they can sell. There is virtually no "good" time and even fewer good reasons to sell. Therefore, if Hester thinks he might need to trim his holdings at any time, the best time to do so is when he has what looks like a legitimate reason.

And yet, and yet.

There are good reasons why Hester will be barred from selling the shares he is granted within his 9.6 million pay deal for five years. When investors' money is at stake, they want to know that management has "skin in the game"; that he suffers when the share price falls and benefits when it rises.

Hester made millions in his previous careers, and it is impossible to believe that he could not have raised half a million pounds elsewhere to pay the taxman. By selling his shares to do so he is sending investors an unwelcome signal that his caution outweighs his confidence.

Hester may be a great banker, but his diplomatic skills leave much to be desired.

Margaret Doyle is a shareholder in RBS.

Talk about hitting the ground running. Even though he doesn't formally take charge until next month Win Bischoff, chairman-designate of Lloyds, is reported to be pressing for the bank to raise up to 15 billion pounds through a rights issue and to scale back its participation in the government's Asset Protection Scheme (APS).

His intentions are to be applauded. But regaining some independence will not come cheap for Lloyds shareholders, and substantial government support will still be needed.

The world has changed since the APS was launched on March 8. It prevented the collapse of the UK banking system, while stopping short of full nationalisation.

At the time, Lloyds agreed to submit assets worth 260 billion pounds -- a quarter of its entire loan book -- into the scheme. After absorbing the first 25 billion pounds of write-downs on the loans, the government would absorb 90 percent of any further losses.

The fee was 15.6 billion pounds, in the form of 'B' shares convertible into ordinary shares at 115 pence. Lloyds shares were around 42 pence at the time, so the terms were extremely generous to the bank.

The crisis passed, and Lloyds shares have more than doubled. Five months on, the bank has a better handle on the losses in its loan book, particularly the disastrous HBOS portfolio which accounted for 80 percent of its 13.4 billion of write-downs in the first half.

Having taken what peers consider to be a conservative view of provisions (i.e. a lot), Eric Daniels, Lloyds chief executive, went so far as to predict last week that bad debt charges had peaked.

Meanwhile, the APS has morphed into a bureaucratic monster as the government attempts to review the individual loans. The bank wants to put the worst cases into the APS, which was designed to deal with only the average.

Today, Lloyds could credibly argue that, at more than 40 billion pounds, the all-in cost of the scheme (first loss plus premium) is greater than the losses it is likely to suffer on its legacy loan book.

However, to scrap the scheme altogether needs fresh capital on a scale which the markets will not provide, even in today's improving climate. The problem is simply too big to be solved at a stroke, while maintaining the capital ratios at the high level demanded by regulators.

Lloyds could not raise the cash it needs to abandon the APS altogether; even a 15 billion pounds fundraising -- larger than HSBC's record offering from earlier this year -- would not solve the problem. But a big rights issue could allow it to scale back its participation in the APS.

The government could underwrite the issue, and effectively dictate terms to ensure that its shareholding did not rise too far for comfort. This would allow Bischoff and Daniels to argue that the plan reduces the government's ongoing involvement in the running of the bank and reduces the possibility of it taking fuller control by the conversion of the new B shares.

A reduced APS could enable Lloyds to negotiate less punitive terms from EU competition commissioner Neelie Kroes in return for receiving state aid.

As Daniels acknowledged last week, Lloyds would still benefit from government support that caps future losses. The government would also receive some compensation for its support to date - without which Lloyds would have failed months ago.

Even so, if Lloyds can persuade shareholders to take on some of the risk that is currently borne by the government, Sir Win could notch up his first victory before he even takes the reins.

(Additional reporting by Peter Thal Larsen; Photo: Reuters/Stefan Wermuth)

– Margaret Doyle is a Reuters columnist. The opinions expressed are her own –
Barclays’ and HSBC’s interim results are a study in contrasts. Barclays has used the credit crunch to make a bet-the-farm move into the investment banking big-league, a bet that has so far paid off. HSBC, in comparison, chastened by its flawed move into the U.S. subprime market, has returned to its conservative roots.
John Varley, Barclays’ chief executive, gives the usual guff about “staying close to our customers and clients”. In truth, Barclays’ 3 billion pounds of profit in the first half owes much more to its investment banking division, enlarged by its opportunistic acquisition of Lehman Brothers’ North American unit last autumn, than to its traditional banking businesses.
Barclays Capital (BarCap) more than doubled revenues to 10.5 billion pounds, and doubled pre-tax profits to 1 billion pounds. As with rivals, the star performer was fixed income, currencies and commodities where banks are profiting thanks to their access to very cheap central bank funding.
This is just as well, because Barcap is still carrying plenty of toxic assets left over from the credit boom. These cost it 4.7 billion pounds in gross writedowns and impairments in the first half. Given that it still has other dodgy exposures, including assets worth more than 7 billion pounds guaranteed by ailing monoline insurers, further losses seem likely. Barclays cannot rely on other parts of the bank to come to its rescue: profits in traditional retail and commercial banking businesses all collapsed as impairments soared.
HSBC’s global banking and markets (GBM) division also delivered a record performance, more than doubling its first-half profits, to $6.3 billion. However, HSBC has long resisted the charms of investment banking, and runs GBM as a complement to its existing global commercial banking franchise. Despite the juicy returns currently on offer, this is unlikely to change.
HSBC has its own sizeable bit of historical baggage in the form of Household, the U.S. consumer lender that is now being expunged from the record, though not without considerable additional losses.
Many suspected that HSBC would use its bumper $17.8 billion rights issue this spring to acquire divisions of ailing rival banks at bargain basement prices. So far, it has resisted, instead bolstering its tier 1 capital ratio to 10.1 percent.
Rather, it is building on its position as the world’s leading international bank (especially now with Citi holed under the waterline) organically. While cash-strapped rivals retreat from China, HSBC is investing in its Chinese operations. It has been the first international bank to settle cross-border trade in renminbi (yuan). It is on track to have 100 outlets, including many in rural China, by year end, more than any other international bank. Such loyalty will not go unnoticed in Beijing.
Which bank is better positioned for the new environment? That depends partly on the speed of the recovery. Barclays has so far performed a dazzling high-wire act, avoiding state capital by spreading its losses over a number of years and by selling its Barclays Global Investors arm. But this is hard to sustain if the downturn turns out to be prolonged. Meanwhile, once banking conditions return to normal, central banks will cease to flush investment banks with cheap cash and investment banking profits are bound to tumble. The HSBC tortoise looks set to leave the Barclays hare far behind.

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

One of the challenges for bond investors over the coming years is how to deal with the enormous ballooning of government debt that is happening as a result of the credit crisis.

Traditionally, investors allocate funds between asset classes and require managers to manage to a benchmark. However, most indexes are based on market capitalisation: the securities with the biggest value in aggregate have the largest share of the index.

This is less than ideal in equity markets, where indexing can lead to herding by forcing investors to buy overvalued shares. But it is particularly perverse for bond investors. The countries with the largest weightings in the indices are those that have issued the most debt.

At present those are the countries with the most colossal deficits to finance. So, traditional index-tracking bond funds are being obliged to allocate more money to precisely those countries whose creditworthiness is decreasing fastest.

PIMCO, the world’s biggest bond investment manager, has come up with a new index — the Global Advantage Bond Index (”Gladi”) — that tries to get around this problem.

Gladi, which is being administered by Markit, a global index provider, is weighted by national income rather than by historic debt issuance. When initially launched, after 2 years of research, earlier this year, it was pitched as a way of “building in a tilt toward these countries that are developing rapidly but their capital markets and market capitalization haven’t caught up yet.”

However, now it is being marketed as a way for pension fund trustees and other investment managers to avoid increasing their exposure to the debt of countries like the United States and the UK, which are planning to issue trillions of dollars worth of bonds over the next few years to pay for their bank bailouts and to stimulate the economy.

Indeed, PIMCO reports that some clients want to avoid government bonds — which account for around 50 percent of traditional bond indexes (the remainder is roughly split 50/50 between corporate bonds and various mortgage-backed securities), altogether.

In the past, governments have found cunning ways of increasing demand for their bonds, whether patriotism, to flog war bonds, or requiring insurers to hold more “safe” gilts as a hedge against long-term liabilities. Now regulators are going to require banks to hold more capital, and more of it in the form of liquid instruments, i.e., government bonds.

However, they will also need to persuade non-bank investors to buy their bonds if the interest burden is not to spiral out of control. And unfortunately for the deficit-hit governments, investors seem to have seen them coming.

(Editing by David Evans)

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

Chancellor 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.

Unfortunately, the Conservatives have already pledged to dismantle it and give more power to the Bank so, faced with political reality, Darling has plumped for reinforcing failure. His new “Council for Financial Stability” is effectively the tripartite authority on a statutory footing. It will be required to review the Bank’s and FSA’s publications on financial stability and to make public recommendations. The FSA is also given a “statutory objective” to strive for financial stability.

It’s hard to see how this will make any difference. The FSA and Bank are engaged in a turf war, while Mervyn King, the Bank’s governor, revealed recently that the Treasury had not shared this White Paper (policy document) with him.

At the retail level, Darling’s introduction of a new “national money guidance service”, to be funded by a levy on the financial services industry, looks like an attempt to grab the headlines. Banks and insurers undoubtedly sell complex products whose main purpose is to generate fees but the FSA already has a mandate to protect and to educate the consumer.

He has also accepted the recommendations from Adair Turner, chairman of the FSA, to oblige banks to have more capital and sufficient liquidity. However, he seems to have no more idea than anyone else quite how to do it.

He has resisted the temptation to split commercial banking from investment banking, instead requiring banks to “make a will” so that they are easier to wind up in the event of insolvency, thus limiting the damage to the rest of the economy. Again, much easier said than done.

Darling proposes to fix one flaw in Britain’s deposit protection scheme by pre-funding it. That looks like yet another demand on banks’ scarce capital. Better communication, coordination and transparency between regulators is needed to avoid another crisis. Unfortunately, as Turner has himself admitted, they were not competent to spot the last one, and all the transparency in the world will not equip them to spot the next. Perhaps these measures are just motherhood-and-apple-pie, after all.

(Edited by David Evans)