financial regulation

Ireland’s done it. The UK’s about to do it. Now Denmark’s quite keen too.

Central bank director Nils Bernstein has said he’d like to see much closer co-operation with the Danish regulator, the FSA. ‘We can see a trend in Europe and internationally which involves some kind of fusion between central banks and financial regulatory authorities,’ he told financial daily Børsen (Danish, translation). ‘This could be advantageous for Denmark too.’ Read more

George Osborne and Mervyn King’s Mansion House speeches have just been published. Their content makes it clear that the Bank of England will be all-powerful in UK financial regulation and Mr King will sit on top of the new castle. He was already so powerful he felt able to make jokes about the chancellor’s youth, something I gather is generally not popular in Number 11.

(Boring aside. Mr Osborne is 39, 23 years younger than Mr King, a subject on which the governor chose to dwell at some length in a way that, to put it politely, bordered on patronising.)

Earlier today I wrote a list of things we did not know. Here are the answers in red:

  • What “oversight of micro prudential regulation” precisely means. It is a slippery concept which could include anything from the movement of the entire supervisory role of the Financial Services Authority into the Bank of England to a very limited role for the Bank in gaining more access to information. It means making the banking supervisors from the FSA a subsidiary of the Bank of England. Hector Sants of the FSA will be the new chief executive of the prudential regulator and a Bank of England deputy governor. This subsidiary will carry out

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There is no doubt that the international wrangle over new banking regulations is hotting up. Standards for capital, liquidity and leverage are due to be settled by November and this is the big bone of contention here in Busan where G20 finance ministers are meeting. There does not seem to be a resolution in sight yet.

Everyone agrees that banking regulations need to be beefed up, but that is where consensus ends and the dissent starts. That this is difficult and threatens to blow up is clear from the delay to the higher capital requirements for banks’ trading books, which was due to be introduced in January and has now been postponed. There are disagreements over: Read more

Simone Baribeau

The Fed is, as I write this, holding a meeting on the December Basel committee proposals on capital and liquidity. The meeting, announced last week, comes in between normally scheduled talks, and a month after the official end to the comment period. The timing may seem unusual, but if the US central bank doesn’t hold the meeting now, it risks losing its opportunity to go on the record about its position on capital adequacy rules before the financial reform bill passes, say economists.

“[The meeting is] a response to the quickening pace of financial reform in the US Congress. And also in response to the debates going on in Europe, particularly in Germany, the Fed wants to go on record and attempt to influence lawmakers as we approach passage and reconciliation of the final reform package,” said Joseph Brusuelas, chief economist at Brusuelas Analytics. Read more

Alan Beattie

Here in DC waiting for the G20 central bank governors and finance ministers meeting to end. There have been no actual cries of pain and bodies thrown out of the room as yet, but I think it’s safe to say that agreement over the vexed issue of taxes on banks’ balance sheets and/or profits is not going to be resolved this weekend. The Canadians at least have some moral authority on their side when they point out that their banks didn’t fail during the crisis, so why should they adopt the preferred solution of those whose banks did?

One thing strikes me, though. As we all know, the baton of global governance has passed from the G7 to the G20, sign of the rising power of Asia and Latin America, etc, etc. But this subject – the one that is most vexing and dividing them at the moment, except perhaps exchange rates – is a pure G7 issue. Few other countries’ banking sectors are big and developed enough to try to steal business from London or New York or Frankfurt or Paris or Tokyo as a result of new bank taxes, and those that might conceivably be – Singapore, Switzerland – aren’t in the G20 either.  The G20: not a governance panacea. Who’d a thought it?

Simone Baribeau

As the Senate prepares to vote on the financial regulation bill, Ben Bernanke, Fed chairman, Mary Schapiro, SEC chairman and Timothy Geithner, Treasury Secretary, appeared before the House Financial Services Committee to dissect what went wrong with Lehman.

Lots went wrong, of course, but the regulators (Mr Geithner was head of the NY Fed, at the time of the Lehman bankruptcy) shed little fresh light on their response (or lack there of) to Lehman’s ‘bad behaviour’. The Fed said it had no authority to regulate. The SEC, according to Ms Schapiro, didn’t have the ‘staff’, ‘resources’ or ‘mindset’ to be a prudential regulator. Lehman repeatedly failed stress tests, even those that did not exclude real estate, and the market was left blissfully unaware of the impending catastrophe. Read more

Simone Baribeau

The Fed didn’t know about ‘repo 105′ and if it had, it wouldn’t have cared.

That pretty much sums up Ben Bernanke’s planned testimony to the house financial services committee tomorrow.

Knowledge of Lehman’s accounting for these transactions would not have materially altered the Federal Reserve’s view of the condition of the firm; the information we obtained suggested that the capital and liquidity of the firm were seriously deficient, a view that we conveyed to the company and that I believe was shared by the SEC and the Treasury Department.

Mr Bernanke also, of course, says that the Fed was not Lehman’s regulator, and that it only began monitoring the financial condition of Lehman as the financial stress built in March 2008.

As it turns out, former Lehman chief executive Dick Fuld also doesn’t remember the now infamous “Repo 105″ – a technique used by Lehman which critics say allowed it to make its balance sheet look healthier. Read more

Alan Beattie

The Inquisition Financial Crisis Inquiry Commission, the non-partisan US investigation into what went wrong, is holding an auto-da-fe hearings this week on lessons learned from the crisis. A bit late, frankly, since it is due to report by the end of the year, and the financial regulatory bill is supposed to be done and dusted well before then.

Perhaps instead it can act as a truth and reconciliation commission, or a historical re-enactment society. One of the panel’s victims guests is Chuck Prince, the former Citibank head of “as long as the music’s playing, you’ve got to get up and dance” notoriety, whose bank was eventually rescued by the government for a huge outlay. The historical model for the FCIC is the Pecora Commission, named after the aggressive counsel on the Senate banking committee who tenaciously pursued miscreants and whose investigations led to sweeping federal financial regulation. One of his most notable targets was Charles Mitchell, head of the National City Bank of New York, the speculative behaviour of which was widely blamed for contributing to the stock market crash. And National City Bank later turned into….Citibank. Some things never change.

Simone Baribeau

According to the newly released highlights of Christopher Dodd’s proposed regulatory overhaul, the Federal Reserve would be facing some major changes. In brief:

  • The New York Federal Reserve Bank president would be appointed by the president “with the advice and consent of the Senate”, rather than chosen by the bank’s directors.
  • A to-be-created consumer watchdog would be housed within the Fed.

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Andrew Bailey, the Bank of England’s head of banking services, has just given details on how he hopes regulation can help solve the “too important to fail” issue. His list of what a future bank like Lehmans would have to do is quite an eye-opener writes Chris Giles of the Financial Times.  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

Gordon Brown has just tried to upstage the G20 finance ministers meeting by reheating the idea of a global levy on financial transactions – a tobin tax of sorts. His words were rather more cautious than the spin and this idea is still going absolutely nowhere, writes Chris Giles of the Financial Times.  Read more

Ralph Atkins

An attack by Christian Noyer on the banking system reflects the ECB’s mood, writes Ralph Atkins of the Financial Times Read more

An international tax on bankers and a Franco-British initiative for poor countries; just two of the most empty gestures at this weekend’s IMF and World Bank annual meetings in Istanbul, writes Chris Giles of the Financial Times Read more