high level experts agree on separation of trading from banking October 2, 2012
Posted by Bradley in : financial regulation, transparency , add a commentThe Report of the High-level Expert Group on reforming the structure of the EU banking sector is out. The Report states:
We organised hearings with a large number of stakeholders who represented providers of banking services, consumers of such services, investors in banks, policymakers and academics. The Group has furthermore held a public consultation of stakeholders, the responses to which are published together with this report.
But the report does not give details of any of the hearings. And, as of this morning, responses to the Consultation are still not available at the consultation page, nor is there a link to responses from the press release. There is a long bibliography at the back of the Report and many citations to academic literature throughout.
Here’s the conclusion of the Report:
The Group´s conclusion is that it is necessary to require legal separation of certain particularly risky financial activities from deposit-taking banks within a banking group.
The central objectives of the separation are to make banking groups, especially their socially most vital parts (mainly deposit-taking and providing financial services to the non-financial sectors in the economy), safer and less connected to high-risk trading activities and to limit the implicit or explicit stake of taxpayer in the trading parts of banking groups. The Group’s recommendations regarding separation concern businesses which are considered to represent the riskiest parts of trading activities and where risk positions can change most rapidly.
There are five recommendations: separation of risky business from deposit-taking, a requirement for banks to have effective and realistic recovery and resolution plans, the use of designated bail-in instruments (to be held outside the banking system), more robust risk weights in the determination of minimum capital standards and more consistent treatment of risk in internal models, and corporate governance reforms. There’s some more detail in the report about how to ensure the insulation of the deposit-taking part of a bank from proprietary trading, but there are some questions. For example:
The use of derivatives for own asset and liability management purposes, as well as sales and purchases of assets to manage the assets in the liquidity portfolio, would also be permitted for deposit banks.
The authors of the report are limited in what they can recommend by the need to allow for the continued existence of universal banking in the EU, and by the idea that the proposals had to be sufficiently simple to be able to be implemented throughout the EU. The Group endorses the Commission’s European Banking Union proposals and states that its own proposals for the single market “can help the establishment of a banking union.”
It’s not clear what will happen to the recommendations. They aren’t evidently either very politically nuanced, or drafted with the sort of detail lawyers like (and we know how complicated the details of separating out proprietary trading from banking are in the US (the authors of the Liikanen Report seem to think the Volcker rules are in place as of July 2012 but if this is what they think they are mistaken)).
michel barnier critiques basel peer review October 1, 2012
Posted by Bradley in : financial regulation , add a commentThe Basel Committee has published assessments of the levels of compliance of the EU, Japan, and the US with Basel III. The reports are characterized as preliminary assessments. Nevertheless, Michel Barnier had some problems with the EU report:
In 12 out of 14 areas of the preliminary “Regulatory Consistency Assessment” concerning the EU published by the Basel Committee today, the draft European legislation has been fairly assessed to be “compliant” or “largely compliant”. I have, however, reservations about the preliminary findings in the remaining two areas, which do not appear to be supported by rigorous evidence and a well-defined methodology. I believe that this has led to an apparently significant lack of consistency in the way judgement and gradings have, in this preliminary phase, been applied in those two areas across jurisdictions. The European Commission and the European members of the Basel Committee have provided extensive information and clarifications to the Basel Committee during the process, but unfortunately this has only been partially reflected in this present preliminary report. Here at the Commission, we stand ready to support the further work by the Basel Committee to improve its assessment of standards implementation and are confident that the final report of the Basel Committee will constitute an improvement both in the assessment of the EU and in the coherence across jurisdictions.
There is more detail in the press release. As this sort of peer review process is becoming a more visible component of the transnational standards process (I am working on a paper on this topic focusing on the FSB’s peer reviews) the questions Barnier raises about methodology are important.
accountability failures September 30, 2012
Posted by Bradley in : consumers , 1 comment so farIf we ever do get a treadmill from Sears after the weeks of waiting, getting up early to wait some more, being woken up early just to be reminded that we are still waiting, it’s pretty likely that we will get another robocall asking us how the delivery went (unless it is easier for Sears folk to disable follow-up calls than reminder calls that tell us we’re still waiting). And here is what is to me the worst part of all this. The people we can manage to speak to are limited by the scripts they are required to follow – they have almost no agency in any of this by design. The only people we may be asked to evaluate in any of this are the people who perform the scripts and not the people who write them. The people without power are made accountable rather than the people with power. But if you only choose to ask customers how they were treated by the script-followers you won’t get real feedback about the consumer experience. The systems may be designed that way on purpose, but if that is so it’s a pretty sad state of affairs.
how to facilitate international co-ordination of financial regulation September 29, 2012
Posted by Bradley in : financial regulation , add a commentFrom a recent speech by Robert Jenkins of the Bank of England’s Financial Policy Committee with the title A debate framed by fallacies:
global regulators would have less to argue about if there were fewer rules to coordinate and fewer regulations to enforce.
bba libor announcement September 25, 2012
Posted by Bradley in : financial regulation , add a commentToday the BBA announced:
The BBA seeks to work with the Wheatley review team as they complete their consultation on the future of LIBOR. If Mr Wheatley’s recommendations include a change of responsibility for LIBOR, the BBA will support that.
Press stories seem to assume that the BBA will be walking away. I am not sure what this would do for all of the transactions where the documentation refers to “BBA Libor” or “British Bankers Association Libor” (such as this one).
transparency defects can harm people September 22, 2012
Posted by Bradley in : transparency , add a commentI did everything a doctor is supposed to do. I read all the papers, I critically appraised them, I understood them, I discussed them with the patient and we made a decision together, based on the evidence. In the published data, reboxetine was a safe and effective drug. In reality, it was no better than a sugar pill and, worse, it does more harm than good. As a doctor, I did something that, on the balance of all the evidence, harmed my patient, simply because unflattering data was left unpublished.
imagining better transparency September 21, 2012
Posted by Bradley in : transparency , add a commentCorporate Europe Observatory critiques the EU’s policy processes in this video.
The video focuses on participation in expert groups, but there’s an imbalance in participation in later consultations also. Comments to the European Parliament’s consultation on market manipulation : lessons and reform post LIBOR/EURIBOR have been published here. As usual there are a large number of comments from trade associations and a small number from groups representing consumers.
There are some transparency issues (defects) with respect to the publication of these responses. There are three anonymous submissions. Although the GFMA seems to have tried to contribute to this consultation with its global principles document, which was addressed to Arlene McCarthy, the Committee’s rapporteur among others, and AFME clearly thinks the GFMA document was responsive to this consultation, the GFMA document does not appear in the list of comments. Also, the response of the Association of Foreign Banks states in answer to a number of the consultation questions “Please see our response to the UK Wheatley Review of LIBOR: initial discussion paper.” Presumably this was provided to the Committee, but it is not on the consultation page and is not accessible from the AFB’s website (which is generally opaque to non-members), or from the Wheatley Review web page which does not (yet?) show the comments made to that Review.
From the perspective of public transparency this isn’t ideal. In some ways I do have a preference for consultations where the full responses are published (if in fact they are), but this method of providing access to the comments does require a lot of time to wade through the responses. And this is made worse by the fact that some of the responses contain padding , are not precisely geared to this consultation (for example the response from Transparency International, although it does have some good stuff in it) or are designed not so much to provide information useful for the consultation as to create a good impression – pr rather than policy. But the fact of providing online access to comments does suggest that much more could be done. The consultation could link to the Transparency Register, and, in turn that Register could link to all representations the registered entities have made to EU institutions.
eesc on tax havens September 20, 2012
Posted by Bradley in : governance , add a commentI have been reading some of the Economic and Social Committee’s opinions, and am very struck by the tough tone of a recent opinion on tax havens (Joe Biden gets a special mention in the context of the opinion’s description of Delaware as a tax haven), published in the Official Journal at the end of July. Here’s a brief excerpt:
There are reasonable grounds for stating that the financial crisis has been driven in part by complex and opaque transactions carried out by financial operators domiciled in jurisdictions that maintain financial secrecy, causing serious loss for investors and the purchasers of such financial products. Tax havens host off-balance sheet transactions by financial institutions, as well as complex financial products that have contributed nothing to innovation in the financial sector, but generate financial instability. There is clear evidence that much foreign direct investment, especially in developing countries, comes from tax havens.
financial regulation developments September 19, 2012
Posted by Bradley in : financial regulation , add a commentThe UK Treasury is now consulting on the financial policy committee.
Today, Andrea Enria, Chair of the EBA, speaking to the EU Parliament’s Committee on Economic and Monetary Affairs, commented on the Banking Union proposals, saying the they will require a single rulebook for the EU and “a leap towards truly unified supervisory methodologies” to avoid a polarisation between the euro area and the rest. She also promised that the EBA will be working on consumer issues. Steven Maijur of ESMA also updated the Committee on ESMA’s work. EIOPA does not yet seem to have published its submission on its web page.
Next Monday the Committee on Economic and Monetary Affairs will hold a hearing with the title: “Tackling the culture of market manipulation – Global action post Libor/Euribor” (Gary Gensler will participate).
Update: here is the EIOPA statement.
hector sants letter about fsa, diamond and barclays September 19, 2012
Posted by Bradley in : financial regulation , add a commentWhen the Treasury Select Committee published its preliminary report into Libor last month, Hector Sants wrote a letter to Andrew Tyrie stating that when the FSA approved Diamond’s appointment it did so having considered the fact and implications of the Libor investigation. Today, about a month after the letter was written, the Committee published the letter, a file note supporting the contents of the letter, and Andrew Tyrie’s response. As the Telegraph notes, Tyrie’s response points out that the Sants letter, supported by the file note, contrasts with statements Marcus Agius made to the Committee.