The Bankwatch

Tracking the consumer evolution of financial services

Does G20 plan ensure bank nationalisation for weak banks in the near term?

The G20 summit is over, and the results produced here.  So what are the outcomes relative to banks, and relative to my earlier assessment of the future of banks;  are there any new clues to the future of nationalisation, bank independence and scope for bank innovation?

www.g20.org

The first nuance is the sub title in the Communiqué relative to bank regulation.  It has been amended from the draft version earlier in the week, from “Reforming financial systems for the future” to the final version “Strengthening financial supervision and regulation”.  This softening is deliberate, and suggests differences between countries as to their approach.

Further, there will be no global watchdog, and that is a good thing.  To expect anything supra-national that had any teeth is to be dreaming.  Instead the Communiqué notes that each country will ensure their domestic “regulatory systems are strong”. 

A new organisation is to be established.  The Financial Stability Board (FSB) that will collaborate with the IMF “to reshape our regulatory systems so that our authorities are able to

  1. identify and take account of macro-prudential risks,
  2. extend regulation,
  3. deal with in appropriate compensation
  4. ensure international consistency of capital  in the banking system once recovery is assured
  5. take action against with tax havens
  6. extend oversight to Credit Rating Agencies

The big yawning gap there is #4.  It pointedly subordinates capital adequacy of banks to economic recovery.  And yet, I believe recovery is to some degree dependent on a stable banking system, which is why on this blog I have covered both aspects.  if this crisis is as I believe it to be a debt crisis, then debt is what must be addressed.  The notion that stimulus and economic recovery will eliminate the debt problem is false, unless the recovery is so rapid that rampant inflation eliminates the value of the debt relative to income, and makes repayment in some future time that much easier.  No-one anywhere is suggesting that as a model, and it would be of such high risk no-one will.  Furthermore it still would not deal with the immediate issue of certain bank asset values being over stated, and their capital base being over stated for those banks.

Does this ensure bank nationalisation for weak banks in the near term?

Written by Colin Henderson

April 3, 2009 at 11:04

Posted in Uncategorized

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