Thursday 22 November 2012

Banking reform in deep crisis

It is not being seen like this, but I do think there is a big crisis in Banking reform in the UK in particular, as well as EU and the World more generally.

Clearly there was a need after the disastrous credit build up of 2001-2008 to make some big changes to Central Bank policy making, Government Policy making and private bank regulations. All of which when you think about it was going to be messy as so much needed to be done so quickly.

As ever, the US come up with the simplest ideas - in this case the Volcker rule - to try and fix things quickly. And of course the UK, beladen with all-knowing bureaucrats, goes for the complex route.

So we ended up with the unhelpful Vickers report which did somethings but did not split the Investment and Retail banks up which would have made everything alot simpler.

Worse is Basel III and the meddling FSA. The latter is not helped by the Governments refusal to put the detailed meat on the Vickers bones - so they are left not sure what guidance to issue. Basel III meanwhile stipulate capital increases fro banks to allocate against products.

You may or may not have noticed that this has ended Investment banking as was. There are many markets that simply are not economic anymore - the amounts of capital allocated is too great to mean returns. As such only advisory businesses work and fixed income and equities, as well as come trading has simply been stopped. Hence the tens of thousands of redundancies in the City - RBS, UBS, Credit Suisse, Citi are all making five figure redundancies at the moment. Yet to come, but baked in now, will be the loss of support jobs in Legal and Accounting firms.

Bank don't know what products are going to work in such an environment of regulatory flux, as their staff are expensive they are sacking them. In a year or two perhaps they will figure out what to do and hire some back. Those who are left are on salary packages often a quarter of what they once were.

This is going to have a big impact on the UK economy - so big that it will delay any meaningful growth until after 2015. And it didn't need to happen - its the impact of bureaucratic imposition on the regulatory reform process.

Of course, no one will care and I expect many comments saying hooray or so what, because Bankers are not popular. They are very popular in the Treasury though - watch those corporate tax receipts fall and a big drop income taxes as bonus's go.

11 comments:

  1. Budgie12:51 pm

    Too many do blame "the bankers" but fail to remember the dead hand of Gordon.

    In the end it is only politicians who have the power to set and change the rules. The rest of us just abide by them (or not, and get jailed).

    You can see that exemplified in the MPs' expenses scandal. They are still at it, because they have accepted the EU world view (and socialist world view) where they make the rules, but only we have to obey.

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  2. Anonymous1:39 pm

    I fear the UK banking sector is too big for us as a nation to support it. It is still >10% of GDP with liabilities (that we are all on the hook for with this bail-out bollocks) that dwarf our capacity to deal with them when theu go tits up. I think it will - and should - be half the size it presently is. Carrying on with the monopoly money madness we've had over the last ~20 years with derivatives etc would be madness.

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  3. It is not that simple.

    A glazier could employ someone to break windows.
    The glazier makes money, so does the vandal.
    Of course the village as a whole loses.
    (yes, the broken window fallacy)

    If the people who no longer have jobs were glaziers the country is the poorer, if they were the vandals, the country as a whole is better off.

    As you mentioned, the profiability of these people's functions depended on the capital used being highly leveraged.
    I think this means high risk and so in wider terms, at least some of them were/are 'vandals'

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  4. hovis4:29 pm

    I can tell you the main growth area to our software business is all Basel III driven at the moment - all regulation and little return (well maybe less bad than it would have been if they implement a solution.)

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  5. Anon/ Andrew - OK so you think we should have a smaller financial secotr. That I can agree with, hnec me being in favour f a Volcker rule.

    The politicians don;t realise though that they have killed the City and we have little else - they don't even know they have done it and there is no plan to replace it.


    I may not like a job, but if I lose it I can't pay my way - the UK is the same. Kill the city because you don't like it and it is immoral...but now there will be no one to pay the bills.

    it's a dark place we are headed too.

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  6. No one in their right mind wants to see job losses of this sort. The country was made too City centric.

    People like me have been saying it for years.

    I wish I hadn't read this. I'm just about to embark on a change in direction.

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  7. America has $15 trillion of debt. To illustrate the scale of this:

    1 million seconds = 12 days

    1 billion seconds = 32 years

    1 trillion seconds = 32000 years... x 15.

    What on earth did this money get spent on ? Surely there aren't enough goods, services, resources on the planet that costs this much.

    Is America in the debt of some cosmic PayDay loan company ?

    Does this debt really exist ? (Question applies to London too)

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  8. Budgie9:40 pm

    The debt is not the fault of the banks, it is down to the politicians who use our children's money to bribe us to vote for them.

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  9. Anonymous5:48 pm

    "As ever, the US come up with the simplest ideas - in this case the Volcker rule - to try and fix things quickly."

    What makes you think the US have fixed things?

    I posit they haven't, they may have postponed the crisis and taken much of private banking debt onto the government balance sheet.

    That doesn't describe 'fixing' things at all.

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  10. "Those who are left are on salary packages often a quarter of what they once were."

    Somehow I feel sure they'll get by OK.

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  11. right to see that i like it so much """ You may or may not have noticed that this has ended Investment banking as was. There are many markets that simply are not economic anymore - the amounts of capital allocated is too great to mean returns. As such only advisory businesses work and fixed income and equities, as well as come trading has simply been stopped. Hence the tens of thousands of redundancies in the City - RBS, UBS, Credit Suisse, Citi are all making five figure redundancies at the moment. Yet to come, but baked in now, will be the loss of support jobs in Legal and Accounting firms.""

    ReplyDelete