US war on banks coming to UK next week

Fri, 2010-01-22 10:28 — Financial Marke...

US war on banks coming to UK next week. President Obama's pledge on Thursday afternoon to end the "excess and abuse" and a "binge of irresponsibility" in the financial system, shook shares in banks.

His proposals are twofold: first to stop banks from proprietary trading – where a bank bets on markets with its own money – for their own gain and against their own customers; and second, to limit the pace of sector consolidation to ensure no one bank becomes too large.

Mr Obama said banks would no longer "be allowed to own, invest or sponsor hedge funds, private equity funds or proprietary trading operations for their own profit unrelated to serving their customers." Officials from the US administration are reportedly planning to fly to London next week in an effort to persuade the UK government to adopt similar plans.

For the banks, the move threatens to hurt an area of business which has been highly lucrative for major investment banks in recent years, and could lead to the need for major banking conglomerates including Citigroup and Bank of America to hive off parts of their core business. Mr Obama's second aim, to limit bank size, will involve extending the current 10pc cap on the share of insured deposits to take into account what he called "wider forms of funding employed by large financial institutions."

Although major banks including JP Morgan Chase and Goldman Sachs chose not to comment, the Financial Services Roundtable, which represents the US's biggest banks, said: "The proposal will restrict lending, increase risk, decrease stability in the system, and limit our ability to help create jobs."

Marc Faber: Obama Makes Bush Look Like Genius

The US administration's interventions in the market will not solve problems and will bring about unintended consequences, Marc Faber, author and publisher of the "Gloom, Boom & Doom Report," told CNBC Friday.

President Barack Obama on Thursday proposed new limits on the size and trading practices of big banks, to prevent excessive risk-taking.

"I don't have a very high opinion of Mr. Obama," Faber told "Squawk Box Europe." "I was negative of Mr. Bush but I think Mr. Obama makes him look like a genius."

"Basically I think everybody will agree that in an economic system the market solves problems best."

The result of the slashing of interest rates to 0 percent in the autumn of 2007 was the surge in oil prices in the first half of 2008, because investors were looking for a place to put their money to get a return, he explained.

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Fri, 2010-01-29 12:45 — Peter Lindmark

Alistair Darling pledges to crack down on proprietary trading

Alistair Darling, the Chancellor, has pledged to squeeze all banks which rely too heavily on proprietary trading, and signalled his support for a permanent Obama-style tax on the banking system.

He insisted that although he does not intend to impose Barack Obama’s proposal to impose a cap on the size of big banks, and to slice off their prop trading arms, he is planning a clampdown which will have much the same effect.

t;In comments on the sidelines of the World Economic Forum in Davos, Mr Darling also urged international regulators to speed through new Basel rules which will effectively limit banks’ profitability by the end of the year, saying he was “frustrated” with the speed with which they were progressing.

The remarks are likely to cause consternation among Britain’s banking chiefs, a number of whom the Chancellor met in a private breakfast meeting later in Davos.

Some of them had assumed that because Mr Darling did not stand directly behind President Obama’s so-called Volcker plan, he would also refrain from imposing swingeing new regulations on the sector.

However, the Chancellor said that although he did not intend to put arbitrary limits on the size of banks, he supported restraints on prop trading.

Rather than simply banning banks from doing it outright, he said he planned to impose new top-up capital requirements on those banks taking the most risks on their own account.

“With prop trading, where banks are involved in risky activity, they must have capital requirements related to that risk,” he said, adding later: “Once we come through this process maybe there will not be as much difference as people think.”

He said that he was working with the US on a permanent “insurance levy” on the banking system, which financial groups would pay into to fund future bail-outs, saying: “In principle, the idea that banks contribute to some sort of resolution fund is something we have floated. We are keen to work on a plan on this with other countries - it might have some traction.”

He said it would be foolish for banks not to co-operate with the Government on these reforms, saying: “It is actually in their interests to get off the front pages, and to do what they are supposed to do, which is to provide credit to the economy. They can all see that the regulation regime needed to be more realistic and more intrusive; Rather than feeling sorry for themselves, the best thing to do is to work with governments.”

Mr Darling also said he was worried about the length of time it was taking for international regulators to agree on the new Basel rules which will determine the amount of capital banks should require, and said these ought to be completed by the end of the year - far earlier than is currently anticipated.

He said: “It is fair to say that there is quite a lot of frustration among finance ministers across the world on this.”

Source: Telegraph

Fri, 2010-01-29 07:34 — Peter Lindmark

Trichet: US reforms “relevant and interesting”

President Barack Obama’s proposals to rein in the US banking sector and its practices could be enacted into law within six months, according to a key congressional leader.

The plan unveiled last week was drafted by Paul Volcker, the former Federal Reserve head and chairman of Mr Obama’s Economic Recovery Advisory Board.

The twin proposals unveiled by Mr Obama last week would constrain the biggest banks from growing and force them to shed hedge fund, private equity and proprietary trading activities.

Mr Frank said he would insist that banks must be given sufficient time – “at least three years” – to divest hedge fund and private equity assets or trim their size. “You can’t have a fire sale. There would have to be a phase-in,” he said.

The initiative was dubbed Glass-Steagall lite by some commentators, who saw in it a slimmed down version of the 1930s legislation that forced commercial and investment banks to split.

His comments came as Bob Diamond, the president of Barclays, said the proposals would do nothing to make the financial world a safer place.

“If you say that ‘large is bad’ and we move to narrow banks, the impact on jobs and the global economy will be very negative,” he said. “I have seen no evidence to suggest that shrinking banks and making banks smaller and more narrow [will help].”

Although Mr Diamond said he recognised that regulatory demands for higher levels of capital and liquidity would be essential, describing “more intrusive regulation” as “a good thing”, he stressed the need for the new rules to be “connected [across] the major economies around the world”.

He also said it was hard to define proprietary trading – the practice of a bank betting its own capital on market movements – or to distinguish it from market making.

Jean-Claude Trichet, the European Central Bank president, told the Wall Street Journal that the proposed US reforms were “relevant and interesting” and shared the same aims as European measures.

He said he thought the UK, in particular, was “ready to come with us”. So far the UK government has made only cautious statements about examining Mr Obama’s plans. George Osborne, Treasury spokesman for the opposition Conservative party, has been vocal about his support for US moves to rein in the banks.

Thu, 2010-01-28 20:52 — John A Morrison