The Great Debate UK
Banks too big to fail, but not too big to change
- Chris Morling is managing director of money.co.uk. The opinions expressed are his own. -
With Britain’s biggest banks widely tipped to report record profits this month debate over banking reform rumbles on. But why have proposed reforms ignored the concerns of the retail banks’ disillusioned customers?
“Never again will the American taxpayer be held hostage by banks that are too big to fail.” So said Barak Obama as he challenged Wall Street to fight it out in what boils down to popularity contest.
In essence he’s right of course. Here in the UK the taxpaying public had no choice but to watch open-mouthed as the Treasury and the Bank of England used the public purse to prop up the banking industry’s crumbling edifice. It shouldn’t happen again, but it’s happened before – and Obama’s measures seem long on fine words but short on detail.
from The Great Debate:
Watch banks for clues on Greece
-- James Saft is a Reuters columnist. The opinions expressed are his own. --
As odd as it sounds, concerns about the effects of a euro zone sovereign crisis on Europe's still poorly capitalized banks may prove to be the tipping point that leads to a swifter bailout of Greece.
While discussion of contagion may seem very 2008, the problems with Greece, which faces a huge fiscal deficit, are becoming tougher for euro zone authorities to leave uninsured.
Glass-Steagall Lite, brewed by Volcker, served by Obama
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
Let me say at the outset that I am far from enthusiastic about either of President Barack Obama’s major policy initiatives: healthcare reform and the banking reform plan announced on Thursday.
from Breakingviews:
Europe’s banks will suffer less from U.S. tax
-- Margaret Doyle and George Hay are Reuters Breakingview columnists. The opinions expressed are their own. --
European banks should suffer less than their American counterparts from the Obama administration’s proposed bank tax. The president’s proposed levy on banks’ wholesale funding requirements will hit all banks with a big presence on Wall Street. But assuming that U.S. banks will be taxed on their worldwide operations, the levy will hurt them more. This could be a major bonus for European investment banks -- as long as their own governments don’t follow suit.
from Breakingviews:
Bank liability levy may not be foolish
A levy on bank liabilities would get the industry squealing - especially if it approached $120 billion. But the Obama administration isn’t crazy to float the idea. A well-crafted tax could help recoup bailout costs while also giving banks an incentive to behave more sensibly. It doesn't have to apply just to the United States, either.
Populism aside, the main rationale for a levy is that the size of a bank's liabilities is a goodish proxy for the risk it poses to the financial system - as well as the benefit it received from the cheap money central banks doled out to offset the credit crunch. It’s reasonable that banks should pay for help from their lenders of last resort.
from Breakingviews:
Four factors to determine bank returns
What is an acceptable return on equity (ROE) for a bank? That question is likely to dominate the debate among executives, investors and regulators in the coming year. After the spectacular losses of the crash, there is no doubt that banks' future returns should be lower than the super-charged profits earned during the credit boom. But if ROEs fall too far, the consequences could be severe.
Returns are already on the way down: just look at Goldman Sachs. Between November 2007 and September 2009, the Wall Street bank's tangible common equity swelled by 74 percent. In 2007, its best-ever year, Goldman earned a 38 percent return on that equity. This year the bank is expected to report the second-highest profit figure in its history. But its ROE is likely to be just half its level of two years ago.
from The Great Debate:
In praise of smaller banks, less volatility
-- James Saft is a Reuters columnist. The opinions expressed are his own. --
If we want a world with safer banks, we need to be prepared for the consequences; lower growth over a painful medium term but the promise of making it up over the long run as we suffer less devastating financial blowups.
A banking system forced to operate with more capital and a higher proportion of safe, liquid assets is one that will shrink and charge more for credit, potentially retarding growth as we transition to a different mix of financing.
from UK News:
Send in questions for city minister Paul Myners
City Minister Paul Myners is among a handful of people with first-hand experience managing the financial crisis over the past year.
On Dec. 16, at 9 a.m. British time, Myners will deliver a speech at an exclusive Thomson Reuters event in London on a proposal the government says will strengthen the City's role as a global investment banking hub. He will also announce a series of policy measures designed to enable an effective resolution for failing firms.
from The Great Debate:
UK bonus tax both cynical and justified
(James Saft is a Reuters columnist. The opinions expressed are his own)
A cynical election maneuver it may well be, but Britain's plan to impose a punitive tax on bonus payments is also reasonably well crafted and in broad terms justified.
Facing a monumental budget deficit and an election in months, British Chancellor Alistair Darling announced a plan to slap a 50 percent payroll tax, payable by banks, on their bonus payments in excess of 25,000 pounds to a given employee.
from UK News:
Too big to fail? Guerrilla central banking and the last resort
Deciding it was safe to come clean because banks are now on a more even keel and the worst of the credit crisis is behind us, the Bank of England has told the nation that at the height of the turmoil it secretly lent Royal Bank of Scotland and HBOS a colossal £62 billion, which is more than the entire British defence budget.
Both banks faced the imminent closure of high street cash machines and the curtailment of normal banking operations across the country.
