Monday, November 5, 2012

HSBC chairman: banks have lost 'right to self-determination'

HSBC chairman Douglas Flint says that banks have lost the 'right to self-determination'.

But that is certainly not going to stop their spending massive amounts of money lobbying for regulations that are favorable for them.

As reported by the Telegraph,

Mr Flint admitted lenders had “lost the right to self-determination” following the financial crisis and now had little influence on new regulation.
Based on the litany of bad behavior including manipulation of Libor, money laundering, and mis-selling of interest rate swaps,  banks should have lost the right to self-determination.

However, as shown by US banks, that is clearly not the case.
“It doesn’t really matter whether any of us think it [the new rules] will be our optimal choice as I think we’ve lost the right to determine ourselves what we think the optimal choice is,” he told the parliamentary Commission on Banking Standards. 
Mr Flint warned that overly-onerous regulation could still force the bank to relocate to another country but said any decision on the long-standing issue had been put back to 2015.
The threat to move is a prime example of a bank lobbying.

Regular readers know that your humble blogger has been advocating requiring banks to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

There are several reasons for doing this including:

  1. it reduces the need for overly-onerous regulations that are simply a substitute for ultra transparency and the market discipline it enables (examples of unnecessary regulations include ring-fencing);
  2. it triggers a regulatory race to the top as no country wants to be seen as hosting banks that could be hiding all sorts of risks on and off their balance sheet; and
  3. it does not have loopholes that banks can exploit so that the requirement becomes ineffective over time.
As I have stated previously, requiring transparency is an elegant solution.

However, Barclays chief executive Antony Jenkins sounded an optimistic note as he claimed the bank could “accomodate” government plans to impose a ring-fence on major lenders, whereby they will be forced to isolate retail businesses from investment banking arms. 
“My personal view is that we can accommodate ring fencing without affecting our capacity to lend,” he said.
Talk about a red herring.  Ring-fencing was never going to impede a bank's ability to lend.  Heck, insolvency doesn't impede a bank's ability to lend as the bank can always sell the loan to another financial market participant.
However, HSBC landed a blow on Government plans to establish so-called 'depositor reference’, whereby consumers would have the first call on a bank’s assets in the event of its failure. In its written submission to the Commission, HSBC said the plans were “not permitted” under new European rules currently under discussion. 
HSBC said the authorities should work towards a “single position” on the issue to avoid what would be an embarrassing climbdown for the government. 
Mr Jenkins backed that call and said any expansion of depositor preference should be “carefully coordinated across at least Europe”.
One of the best elements of ultra transparency is that it can be applied in the same way globally. 

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