The Great Debate UK
– Hugo Dixon is a Reuters Breakingviews columnist. The opinions expressed are his own –
Breaking up the banks is no silver bullet. Politicians on both sides of the Atlantic — including two of the party leaders fighting the UK election — want to separate so-called casino investment banks from utility lenders. But such simple rules would create arbitrage opportunities and rigidities without curbing excess risk-taking.
In the last of the UK’s election debates, the Liberal Democrat and Conservative leaders vied with one another to see who could be tougher on banks. As a soundbite, the notion that nasty, risky investment banking should be split from nice, safe retail banking may well be a winner. Gordon Brown, the Labour leader who has a more nuanced position, was left looking like a defender of big banks.
The politics are similar in the United States, where the Obama administration has proposed the so-called Volcker rule, which would prevent banks from engaging in proprietary trading. Some version of this rule may yet emerge in the financial regulation bill now going through Congress.
from The Great Debate:
Ben Bernanke in peril and the Volcker crackdown on proprietary trading by banks show two truths of the current dispensation: there is no effective hedge against politics and the reflation trade rests on fragile foundations.
Neither of these realities is particularly good for financial markets and neither is going away any time soon.
- 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.
Suppose it is 2011 and the Volcker Act has recently passed, sharply curtailing U.S. banks' riskier activities and separating them from retail deposits. Citi's recently arrived chief executive Bob Steel, who is dismantling the group, puts out a memo to the bank's staff saying Tim Geithner has been hired as head of the bank's strategy and investor relations. Oddly, the imaginary scenario is not such a stretch.
From: Bob Steel
To: All Citi staff
Feb. 1, 2011
Dear Citi employee,
By now, most of you probably know that Citi announced the appointment of Timothy F. Geithner as Global Head of Strategy and Investor Relations. Tim, who joins after a hiatus from a distinguished career in public service, will report directly to me.
In his new role, Tim will oversee Citi's relations with shareholders, including the U.S. government and key investors in the Gulf Region. He will work closely with me, as well as Vice Chairman Christopher Dodd and Executive Vice President of Government Relations Harry Reid to manage the increasingly challenging regulatory environment presented by the implementation of the Volcker Act.
As you all know, we are now focused on developing our client franchise in our core business as we proceed with the series of dramatic changes announced in recent months to the corporate organization of the group. Under Tim's leadership, we will reinforce the confidence we have begun to rebuild with shareholders as we embark on the biggest restructuring of Citi's capital structure since its founding.
Tim is an exceptional communicator and strategic thinker. His track record shows consistent results under some of the most challenging financial conditions in generations. Our new model -- a smaller, more focused global bank for businesses with no consumer operations and a trading arm devoted entirely to facilitating client transactions -- is one Tim understands from his years in public service, both at the Federal Reserve Bank of New York and as Secretary of the Treasury from 2009 until 2010.
Until suitable replacements are named, I have asked Tim to oversee all of our investor relations responsibilities, including those for Citi's two pending spinoffs: the planned divestiture of Citi's North America Consumer Banking franchise to a consortium led by Banco Itau of Brazil and Carlos 'Slim' Helu; and the creation of Toxia, America's biggest non-bank financial institution, through the merger of Citi Holdings and General Electric Capital's GE Money division.
I hope you are all as excited as I am about Tim's arrival and the great future that lies ahead for the corporation. I am looking eagerly to taking your questions in the various Town Hall meetings that our new Head of Corporate Communications David Axelrod will be setting up at Citi locations around the globe in coming weeks.