The Great Debate UK
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.
Regulators and bankers rarely see eye to eye. But at the World Economic Forum in Davos, the two sides were in surprising agreement about creating a global fund, financed by a tax on banks, to deal with future bailouts.
Mario Draghi, head of the Financial Stability Board, which is spearheading a new global financial regulatory regime under the auspices of the G20, floated the idea of a cross-border body to manage this fund. Surprisingly, several big European banks -- including Barclays and Deutsche Bank -- support it.
The debate about reforming the financial system is often presented as an argument between regulators on one side and banks on the other. But it is also beginning to throw up some differences among banks. One such rift has been exposed by the suggestion that banks should be forced to hold greater reserves of liquidity and capital in national subsidiaries.
Regulators see this as a way of dealing with the future failure of a big bank. Rather than relying on the bank's home government to pick up the tab -- something it may not be able or willing to do -- each country where the institution operates could take responsibility for its local subsidiary.
A year after Lehman Brothers collapsed, policymakers are still getting to grips with the key question raised by the Wall Street firm's fall: how to ensure that the failure of a large bank does not jeopardise the entire financial system.
After much debate, politicians and central bankers are warming to the idea that banks should make preparations for their own failure. This plan -- memorably dubbed a "living will" by Mervyn King, governor of the Bank of England -- would allow regulators to wind down even large, cross-border institutions without putting public money at risk.
Merging T-Mobile UK with Orange will bring 3.5 billion pounds of value to shareholders, and "substantial benefits to UK customers." Goodness, why on earth didn't they get together years ago? A merger that simultaneously enriches shareholders and customers is rare indeed, and one to be treasured - if this really is one of those seldom-seen beasts.
While the 3.5 billion pound figure is credible, the second claim, from Timotheus Hottges, the finance director of Deutsche Telecom, T-Mobile's parent, is harder to believe. The immediate reaction from other shares in the sector rather gave the game away, with retailer Carphone Warehouse down on the prospect of fewer suppliers, and Vodafone up on the hope of less competition in Britain's mobile phone market.
The Obama administration formally sent its plan for regulating derivatives to Capitol Hill today. And to no one's surprise, the key proposal in the 115-bill is a plan to regulate "standard'' derivatives on regulated exchanges of clearinghouses.
As I've pointed out a number of times, Team Obama has yet to come-up with a workable definition for a standard derivative. The administration seems content to kick the issue down the road.
They’re at it again. No sooner has the financial system begun to stabilise than Big Finance is reverting to its old ways — aggressive hiring, remuneration on steroids, wriggling out of regulation or threatening to decamp to evade tougher supervision.
Hector Sants, Chief Executive of the Financial Services Authority, has agreed to take questions from Reuters readers after he delivers his first major speech on the future of financial market supervision on March 12th at the Thomson Reuters Building in London.
Sants, who was appointed just before Northern Rock was plunged into crisis, said last month that fresh thinking was needed in financial market supervision, pledged to get more involved in assessing the competence of senior bankers and waived his entitlement to a bonus for last year amid criticism of the FSA’s performance.
from The Great Debate:
-- James Saft is a Reuters columnist. The opinions expressed are his own --
Think of it as the "Davos Consensus," a loose alignment of principles that held sway in this Swiss mountain resort and in large parts of the world over the past decade.