Category: regulation

regulation

US releases draft regulatory framework for Financial Institutions

Colin Henderson

The US administration released a draft of their proposed regulatory framework today, putting the Federal Reserve front and centre. The big theme is to promote broader control of any institution involved in banking, and to specifically eliminate exemptions such as the Thrift Charter. Draft Fed report on Financial Institution Regulation pdf – 85 pages Continue reading US releases draft regulatory framework for Financial Institutions

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Bank capital levels around the world are low and sufferring

Colin Henderson

The IMF report had a spreadsheet in the appendix with bank capital levels around the world. While it has individual countries, I summarised into this chart.  The data shows Capital as a percentage of Assets so higher is good, lower is bad. Note the negative trends in most except Canada, and this is based on the latest data to end of 2008.  Use the thumbnail for a larger version that is clearer. Continue reading Bank capital levels around the world are low and sufferring

regulation

U.S. Planning to Reveal Data on Health of Top Banks

Colin Henderson

I saw somewhere earlier that the President was planning a major economic speech tomorrow, and now this below is finally coming after being delayed while some banks announced.  This probably explains the context. U.S. Planning to Reveal Data on Health of Top Banks | NYT WASHINGTON — The Obama administration is drawing up plans to disclose the conditions of the 19 biggest banks in the country, according to senior administration officials, as it tries to restore confidence in the financial system without unnerving investors. Continue reading U.S. Planning to Reveal Data on Health of Top Banks

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G20 draft communiqué & FT interview with Obama indicate more regulation coming to Banks

Colin Henderson

Lionel Barber at the FT interviews US President Obama in advance of the G20 meeting Thursday.  Despite the broad sweeping answers it seems unlikely that we will see much tangible outcome from the session, but the G20 draft communiqué (below) is clear about stronger regulation. Obama interview: Full text | Financial Times FT: Let’s talk about the G-20. What will be your benchmarks for success? Obama: The most important task for all of us is to deliver a strong message of unity in the face of crisis. There’s some constituent parts to that. Number one, all the participating countries recognise … Continue reading G20 draft communiqué & FT interview with Obama indicate more regulation coming to Banks

regulation

The Turner Review: a regulatory response to the global banking crisis

Colin Henderson

Here is the Turner Review commissioned by the Chancellor of the Exchequer.  Martin Wolf reviews here at the Financial Times.  Wolf argues it is a watershed for finance making this excellent point – “The most important analytical points are that individual rationality does not ensure collective rationality, that individual behaviour is frequently less than rational and that, in consequence, markets can overshoot, in both directions. Above all, such failings create systemic risks: if everybody believes in the same (faulty) risk models, the system will become far more dangerous than any individual player appreciates; and if everybody relies on their ability … Continue reading The Turner Review: a regulatory response to the global banking crisis

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Bank nationalisation by a thousand cuts is distracting us from the root problem

Colin Henderson

In the series “The Great Unwinding” last week two types of banks, Financial Utilities and Risk Takers were highlighted to appear.  This direction received strong support this weekend with Alistair Darlings order to perform a complete review of bank practices. The review is the not so thin edge of a large wedge when the ramifications are considered. The chancellor said on Sunday that the review would look at risk management by boards including how pay affects risk taking; it would also look at the way boards operate and the role of institutional investors. … Mr Osborne (Shadow Chancellor)  added: “The … Continue reading Bank nationalisation by a thousand cuts is distracting us from the root problem

Business Models, Economy, regulation

banking 101 | All banks are vulnerable to runs

Colin Henderson

This is a fascinating and insightful paper by Willem Buiter and Anne Sibert on the failure of the Icelandic banking system, but with scary parallels to the UK system and others.  In particular though, and of interest to everyone possibly is section 2.1 copied below in full.  It defines the generic vulnerability that all banks’ have to “run a on the bank” even in good times. Thus the argument goes, accept reality, nationalise the banks, and treat basic banking as a utility, just like water and electricity, until a better model can be developed that would have a better chance … Continue reading banking 101 | All banks are vulnerable to runs

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The G20 ought to consider only regulation that assesses the outcome of good and bad decisions

Colin Henderson

President Bush makes an important point and distinction here [emphasis mine].  The couch economists and newly found supporters of a new President are tempted by talk of new regulation and government control.  Bush defends free-market system | BBC Returning to the cause of the credit crunch, Mr Bush admitted that failures had been made "by lenders and borrowers, by financial firms, by governments and independent regulators". But that the answer was "not to try to reinvent the system". Instead, he said the solution was to "fix the problems we face, make the reforms we need, and move forward with the … Continue reading The G20 ought to consider only regulation that assesses the outcome of good and bad decisions

regulation

Some fresh thinking – The New American Bank Initiative (NABI)

Colin Henderson

I worry about the bailout plans led by newly famous Gordon Brown (Prime Minister UK), and which every other world leader is falling over themselves to adopt.  Such an approach is natural for Brown and his political leanings, but to see it occurring around the world to the extent it is happening is worrisome.  That worry is exacerbated now that we see proposals to help out the auto manufacturers.  This is protectionism by another name, and will result in worse companies with worse products.  The same can be said of Banks.  How can a bank with a financial tap opened … Continue reading Some fresh thinking – The New American Bank Initiative (NABI)

Economy, regulation

Yamato Life goes bankrupt due to bad management

Colin Henderson

In a dramatic similarity to HBOS, Bradford & Bingley, to name just two, the Japanese Life Insurer Yamato was caught out investing in securities and losing out in the crash.  The similarity lies in the classic example of a financial services company getting caught out of its bread and butter business, trying to build profits in other ways, and taking shortcuts. Japanese insurer Yamato Life collapses Government officials tried to portray the bankruptcy as a special case. Yamato Life’s failure “is the result mainly of the company’s unique business model, whereby it covered its high operational costs with returns from … Continue reading Yamato Life goes bankrupt due to bad management