Bank ringfences will solve little
Chief Market Strategist, Cantor Index
I AM enormously proud to have survived 50 years in Canada. Over the last week, however, there has been little news involving banks to be remotely glad about.
We heard some “mea-culpa” testimony to the Parliamentary Commission on Banking Standards from Lloyds Banking Group’s chief executive Antonio Horta-Osorio last Monday. On Tuesday, we saw another obsequious effort to the same august gathering from Barclays’ chairman Sir David Walker. He was accompanied by Barclays’s chief executive Antony Jenkins, who is totally committed to obliterating Bob Diamond’s legacy without trace. The level of remorse for miss-selling of payment protection insurance (PPI) by Barclays’s banking division, and its role in Libor manipulation, was hardly contrition personified, however.
On Wednesday, HSBC’s Douglas Flint and Stuart Gulliver robustly informed the acerbic members of Andrew Tyrie’s committee that the world’s “local bank” had provided plenty of evidence that it stamped on those involved in money laundering, for which HSBC had been fined $1.5bn (£956m).
RBS’s £390m fine for Libor transgressions, involving mainly the pricing of the Swiss franc and yen swaps was certainly material, considering the taxpayer owns 82 per cent of the bank. Yesterday, RBS’s chief executive Stephen Hester met the Banking Commission against a background of regulatory fines and rumours that the he was being allocated a bonus of £780,000. Barclays will also be posting its results today, which may include a bonus distribution of £1.5bn – lower than last year, but still a controversial amount.
But what dispirits me most is the lack of understanding by regulators, the Vickers Banking Commission, and politicians as to why the banking crisis happened, as well as an irrational appropriation of blame for these misdemeanours. PPI and Libor were the responsibility of retail and corporate banking, not investment banking. The issue of Libor was admittedly in part down to the trading rooms, though the pricing of loans is the domain of corporate banking.
If the regulators and the government think ring-fencing retail banking from investment banking is a deterrent against reckless behaviour, they delude themselves. In the UK, the credit crisis was triggered by poor credit assessment and injudicious loans against property and mortgages, as well as allowing balance sheets to grow by gargantuan proportions. Tighter regulation and greater capital requirements for banks in the future will suffice.