bank regulation

George Osborne’s mansion house speech tonight is generating lots of interest because it is billed as the moment he reveals his blueprint for financial regulation in Britain. Most of the speculation in the media this morning is of the “let’s print Conservative Party policy and pretend it is a scoop” variety. I have not seen the speech by the chancellor, nor the reply from Mervyn King, Bank of England governor, so here is a quick guide to what we know and don’t know.

What we know for certain

 Read more

Two key Democratic senators offered a narrow path for compromise over the weekend after banks pleaded with regulators and clients to help overturn provisions of a financial regulation bill they say will rock markets.

Chris Dodd, Senate banking committee chairman, and Blanche Lincoln, chairman of the agriculture committee, told the Financial Times there was room to negotiate on a proposal that would force banks to spin off their swaps desks. Financial regulation reform is entering its final week in the senate, and there is a frantic lobbying effort to change parts of the bill before Barack Obama, US president, signs it into law and claims his second big legislative victory after healthcare reform. Read more

Imagine walking down the high street, cash in hand, to place your savings into your local deposit bank. Now imagine going to a different bank to check on your loan balance. And a third bank to find out about insurance. Each bank only offers a specific service: they are local and they do not compete with each other.

Such a set-up would redefine the concept ‘bank’. Read more

The US risks falling into another Great Depression if it removes regulatory oversight from the Fed. This from the newest regional Fed chief, Narayana R. Kocherlakota, who became Minneapolis Fed president in October 2009. Policies taken by the Fed during the crisis “eliminated the possibility of Depression 2.0,” he said. Removing regulatory oversight would needlessly put them “back on the menu”.

Vietnam’s central bank has asked the country’s largest bank by assets to slow loan growth in general, but to increase rural lending. The Chinese recently made the same requests of several Chinese banks (1, 2).

The State Bank of Vietnam has asked unlisted Agribank to limit loans this year to 20 per cent, after their loan book grew 24.4 per cent last year. Agribank should also increase its proportion of rural loans to at least 75 per cent in 2010, from 68.3 per cent last year, governor Nguyen Van Giau was quoted as telling the lender at its annual meeting last Friday. Read more

There is more support for a US-style levy than for a tax on transactions. So says Bank of England governor Mervyn King, who has welcomed President Obama’s proposal to overhaul the banking sector, the ‘Volcker plan‘.

In a Commons hearing on the “too big to fail” debate, Mr King said: “The proposals made it very clear that radical reform is on the table. One way or another we have to reform the financial system,” he added, cautioning that “not one proposal will solve all problems”. Read more

Worth reading both The Economist piece, and Clive Crook’s reaction to it. Gems include:

On nomenclature: Read more

I am reminded of a cartoon on bankers’ bonuses: two men walking along, and one explains to the other: “Apparently, if you don’t pay them enough, they go and bugger up someone else’s business.” If Obama’s proposal is made law, thousands of traders will be out of a job. What will they do?

What wonderful, but slightly awkward timing.

Shortly after Barack Obama proposes breaking up deposit taking banks that engage in too risky business, up pops Paul Tucker, Bank of England deputy governor with responsibility for financial stability, to remind everyone that banking-style risks emerged all over the financial system in recent years, with little or no relationship to whether the entity was a deposit taking institution or not.

This was far from a deliberate spoiler, the speech was in the diary well before Read more

Banking titans Jim Ovia and Tony Elumelu have been asked to resign by July after a new rule limiting the tenure of bank chiefs to 10 years. They are currently serving as MD and CEO of Zenith Bank and United Bank for Africa, respectively. They will not be able to reapply to the bank or its subsidiaries for three years.

The rule was agreed by a meeting of the Bankers’ Committee in Abuja – bank chiefs plus the central bank of Nigeria – and is effective immediately. It is one of several reforms spearheaded by central bank governor Lamido Sanusi, intended to limit the build-up of power and risk within the Nigerian banking system. Other proposals include cutting bank costs, replacing bank chiefs, toxic asset management and a radical suggestion on specialised bankingRead more

Excerpts from an excellent piece by Clive Crook:

“Anger is a poor basis for policy. The prevailing idea that greed plus deregulation explains this mess is wrong. Punishing the banks and turning back the clock is not the answer.”

 Read more

Simone Baribeau

On the heels of Sheila Bair’s earlier comments, the Fed has released a statement to the Senate banking committee arguing that it should continue its supervisory and regulatory role.

In it, the Fed makes at least one obvious statement: “We recognise, of course, that bank supervision, including ours, needs to be more effective than in the past.” Read more

The Central Bank Governors and Heads of Supervision yesterday welcomed progress made by the Basel Committee on Banking supervision, suggesting five areas of particular focus for the banking standards expected by the end of this year.

The Group of Central Bank Governors and Heads of Supervision (“the Group”) is the oversight body of the Basel Committee on Banking Supervision and comprises the same member jurisdictions. Read more

The Treasury Select Committee was on particularly supine form when half of the Monetary Policy Committee came to give evidence this morning, writes Chris Giles of the Financial Times, allowing Mervyn King and Pauol Tucker to paper over their differences on banking regulation. Read more

Good macro data from the UK, but a warning from Fitch that the UK is the likeliest of the big economies to suffer a rating downgrade. The chorus of concerns about CRE sings louder, and much debate on Dodd’s regulation reform proposals Read more

Krishna Guha

Chris Dodd‘s financial regulatory reform plan goes too far in my view in stripping away powers from the Fed. It makes sense to take away the Fed’s ability to bail out individual companies under 13.3 once there is a special resolution entity in place to manage financial failures. But taking away the Fed’s banking supervision role risks robbing it of an information flow vital to deal with financial stability threats. And giving systemic risk powers to a new agency is a recipe for confusion or worse.

Why? Because an economy with a systemic risk or macroprudential regulator and a separate central bank would be like a car with two drivers. Read more

Paul Tucker’s broadside against Mervyn King on the quesiton of bank regulation is little short of mutiny, writes Chris Giles of the Financial Times Read more

Mervyn King goes out on a limb, calling the current proposals for banking reform deluded, writes Chris Giles of the Financial Times Read more