Matthew Elderfield, head of financial regulation at the Irish central bank, will today announce a ban on chief executives becoming chairmen, limits to the number of outside directorships bankers can hold, and new standards for non executive independent members of boards. “So much of what has happened flowed from poor corporate governance and risk management that it is important to get rigorous standards in place,” he told the FT in an interview.
A security should be for life, not just for Christmas. Or at least part of the security.
That is—paraphrased—one of the many judicious suggestions from the Stability section of the ECB’s fourth Financial Integration in Europe report, released today. The proposals seem clever and heart-warmingly risk averse. But the elephant in the room—whether further integration is actually a good thing—is taken as a given: “the progress towards more advanced and integrated financial markets cannot and should not be seen to stand in contrast with the objective of financial stability,” states the report.
Specific suggestions …on …financial reform …include requirements that originators retain an economic interest in their securitisations, that products be simpler and more standardised, intermediation chains shorter, collateral better documented, the role of ratings reduced and investor diligence strengthened, and – more generally – that capital and liquidity requirements be strengthened and made less pro-cyclical.
Expect greater collaboration between the central bank and regulator in Switzerland. They have signed a memorandum of understanding saying they will work more closely together in future.
The two bodies worked more closely during the financial crisis, and fell in love found some common ground. Principal changes/ how it will work:
… and apparently the Republicans are warming to it. Early days and no doubt there will be many more posts on this topic. But for now, here’s what we have.
From Tom Braithwaite, ft.com:
A very rough paraphrase of Daniel Tarullo’s speech follows:
Within the world of banking regulation, the bulk of the consensus has formed around prudential requirements, supervisory initiatives, and market discipline proposals. Those who believe additional measures are required have mostly turning to structural proposals, such as:
(1) Reversing the trend that allowed more financial activities within banks;
(2) Directly regulating products and services, regardless of the type of firm;
(3) Limiting the size or interconnectedness of financial firms.
Other points of interest:
The Dutch central bank will focus on ‘conduct and culture‘ at banks, rather (presumably) than focusing solely on reserve ratios and other capital requirements. This came out on February 8 (apologies) but a full English translation is not yet available.
So, ample room for weekend speculation on how the central bank intends to achieve their aim. Improving the integrity – not just of individuals within the system, but of the system itself – is the holy grail. Capital ratios are poor proxies toward this end.
Today many of the long awaited credit card consumer protections passed by Congress and interpreted by the Federal Reserve take effect. The Fed has launched a new website to help consumers understand their rights.
There’s no news, per se, but it’s worth remembering what banks said would happen if they were prevented from raising interest rates based on a number of now prohibited factors, including changes in consumers’ credit scores, their behaviour with other companies, approaching credit limits, and making minimum payments.
I believe that not using a cardholder’s behaviour on their other debts as part of your predictive model is like taking the batteries out of a smoke detector – Roger C. Hochschild, president Discover Financial Services
I believe if we drop our ability to monitor credit, we could (be compared to)…the subprime mortgage business – Bruce Hammonds, president, Bank of America Card Services
We’ll see what happens. Meantime, the Fed today released another document
Nigeria’s central bank is honing plans to categorise banks by region or speciality. The idea, discussed in January, would reject the current banking model in which all banks are all things to all people.
Swiss central bank governor Phillip Hildebrand has taken a somewhat political stance, defending the universal banking model in an interview with Swiss daily Le Temps. A form of the Glass Steagall Act would not work in Switzerland, he said: wealth management and commercial banking should not be split.
The former banker explained: “The universal banking model represents a form of risk diversification,” quoting difficult periods in the 1980s when one side of the bank had been able to bail out the other. He added that ultra-rich customers needed the full range of investment banking services, for instance to help with mergers and acquisitions involving companies they owned.
In the wake of the financial crisis, the Federal Reserve has made much of the dangers of using interest rates to “lean against” asset bubbles, such as the one in the housing market whose collapse brought the US economy to the brink. Fed governors have implied that this was their only practical tool. (There have been quieter on the influence they may have wielded by warning of the bubble). The problem, several Fed governors have said recently, lied in a failure of regulation.
At today’s Financial Crisis Inquiry Commission hearings, Sheila Bair, chairman of the FDIC, had a response: the Fed, she said, should have regulated.