The Great Debate UK
That's the provocative question posed by Willem Buiter. His latest, characteristically lengthy, blog post tackles the regulatory vogue for forcing banks to hold much greater reserves of liquid assets - in practice, government bonds.
Buiter's missive follows new rules from Britain's Financial Services Authority, which will force banks to increase their reserves of government bonds by more than a third. The rules have been met with predictable bleating from the industry, which accuses the regulator of undermining Britain's competitiveness and promoting the fragmentation of the global financial system. Another concern is the FSA's handling of the transition.
Buiter's objections are more fundamental. He's not convinced banks should be preparing to deal with a seizure in the markets. That, he argues, is the job of central banks:
It may be possible for private banks to hold enough liquid assets (government debt, effectively) on their balance sheets to survive even a major liquidity crunch without recourse to the central bank. But that would be socially inefficient. Banks are meant to intermediate short liabilities into long-term assets, and frequently into long-term illiquid assets. It’s what their raison d’être is.
In 1873, Walter Bagehot wrote that "the business of banking ought to be simple; if it is hard it is wrong." He would have struggled to recognize today's banking system.
It is not just ever more ornate derivatives that bend the mind. Financial firms themselves have become fabulously complicated. Citigroup lists 2,061 subsidiaries and affiliates while the institutional chart of JPMorgan Chase is 267 pages long.
- John Ross is visiting professor at Shanghai’s Jiao Tong University where he writes a blog on globalisation. The views expressed are his own. -
The success of China’s economic stimulus package has attracted increasing attention in Britain and internationally for two reasons. The first is simply its importance for the world economy. Second whether there are general lessons to be learned.
Britain's asset protection scheme, invented to protect the banking system, is morphing into a bureaucratic monster. It's time to kill it off. Though state support is still needed, there are simpler ways for the government to prop up its ailing lenders.
More than seven months after it was conceived, and five months after Royal Bank of Scotland and Lloyds Banking Group signed up to use it, details of the APS have still not been agreed. The sheer task of sifting through 585 billion pounds worth of loans to be insured by the government means any final agreement is months away.
from The Great Debate:
By all means reform accounting, but for pity's sake take your time and keep your expectations low.
Suspending mark-to-market accounting immediately as a means of levitating banks out of peril simply won't work. While transparency may or may not be the foundation of banking, trust undoubtedly is.
from The Great Debate:
People are up in arms about bankers receiving bonuses when the banks they worked for have gone down the pan. But isn't it just as shocking that so many state-backed financial firms still subsidize the eye-popping wages of sporting superstars through rich sponsorship deals?
It's the same story on both sides of the Atlantic. Citigroup, which received $45 billion from the U.S. government, is sticking with a $400 million marketing deal from 2006 which includes the naming rights for the new home of the New York Mets baseball team, which will be called Citi Field.
from James Saft:
More leverage and less transparency, apparently.
Schwarzman told a panel at Davos that you can't mandate higher levels of bank capital at the same time losses are mounting and that mark-to-market accounting needed to be changed.