Opinion

The Great Debate

Credit control will be much more intrusive in future

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

The international system of bank regulation, epitomised by the Basle II process and the light-touch principles-based regulation of Britain’s Financial Services Authority (FSA) has comprehensively failed.

In too many instances, light-touch principles-based regulation with an emphasis on banks’ internal risk controls turned out to be no effective regulation at all.

Former Fed Chairman Alan Greenspan was the most prominent proponent of this approach, which relied on the profit-maximising self interest of financial institutions to limit risk-taking to prudent levels.

In this view, bank leaders themselves could be relied upon to manage their institutions prudently — after all bankruptcy is not in the interest of shareholders. Previous bank failures (such as Barings) were the result of failure to measure risks properly, or failures of internal communication and control.

First 100 Days: Fix the banks

morici– Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission. The views expressed are his own. —

For every new president, campaign promises and inaugural idealism must give way to the hard choices that measure the mettle of their leadership.

Now Barack Obama must act pragmatically to fix the banks or the economy will sink under their weight.

UK suffers from banks’ Darwinian hibernation

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Britain’s banks are fulfilling their Darwinian role, to survive, rather than their economic one, to lend, and there is no easy or painless way out.

A glance at the latest Bank of England Credit Conditions Survey makes grim reading, with yet another marked tightening of lending conditions to households and businesses. Loans are harder to get and more expensive where available, which is hardly surprising given rising defaults and a hardening view that the UK will suffer a long and deep recession.

from Reuters Editors:

And the band played on: covering the economic crisis

dean-150I recently visited one of the most frightening sites on the Web—the place where I look at my shrinking retirement account.

As I calculated the investment loss since the steep decline in the markets began, and particularly since the collapse of Lehman Brothers in mid-September, some questions arose (in addition to: Will I ever be able to retire?).

--Did we in the media do our job in reporting on the run-up to the crisis?

--Now that an “official” recession has been declared in the U.S. and the depth of the crisis is becoming clearer around the world, are we in the media keeping things in perspective? Should we even be using words like “crisis” or “meltdown?”

Banking spins destruction myth: Hoocoodanode?

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Just as every society has a creation myth, banking is now busily writing a destruction myth that seeks to explain and soothe in a world torn to its foundations.

The myth, as expounded by regulators, bankers and their various service providers, is that we were hit by a perfect storm, a 1,000-year flood so unpredictable that we can’t possibly be held accountable for it. An act of god, rather than the folly of man.

Uncertainty paralyzes U.S. banking system

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

Extreme uncertainty about the economic outlook and the depth of the recession has paralyzed normal lending activity by commercial banks in the United States and elsewhere. Even as the Federal Reserve has added liquidity and boosted bank reserves, the credit creation process has remained stalled as banks struggle to identify good borrowers willing and able to repay in a wide range of future economic conditions.

The attached chart is adapted from the Federal Reserve’s weekly H.8 release on “Assets and Liabilities of Commercial Banks in the United States” (https://customers.reuters.com/d/graphics/US_CRDT1108.gif).

Petrodollar drought another blow to banks

James Saft Great Debate — James Saft is a Reuters columnist. The opinions expressed are his own –

Banks in Europe and Britain, and their unfortunate would-be borrowers, face another blow as plunging oil prices tighten the spigot of petrodollar deposits.

Billions of dollars worth of funds from oil exporting nations have made their way into banks from Zurich to London in recent years. These inflows helped banks withstand credit crisis losses and, given much of the money was in dollars, was a source of dollar liquidity during recent money market difficulties.

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