The Bankwatch

Tracking the consumer evolution of financial services

G20 leans towards an ineffective bank by bank solution approach

When I read this the first time I thought the idea of a 2 tier system was wrong but on reflection and considering the banks they use as examples outside the TBTF (Too Big to Fail) group, the more it makes sense.

G20 draws up 2 tier bank plan | ft.com

Nonetheless, the G20 will press ahead with the creation of two separate systemic bank lists, the first with an estimated 20 global banks whose failure would pose a risk to the international financial system. The ­second would be a country-by-country list of banks that are systemically important within their home economies, but pose little danger to the world.

The Financial Stability Board, the global body that implements the G20’s communiqués and which comprises senior international regulators, has been working on a list for more than a year. The banks on the original list were Goldman Sachs, JPMorgan Chase, Morgan Stanley, Bank of America Merrill Lynch and Citigroup of the US; Royal Bank of Canada; UK groups HSBC, Barclays, Royal Bank of Scotland and Standard Chartered; UBS andCredit Suisse of Switzerland; France’s Société Générale and BNP Paribas;Santander and BBVA from Spain; Japan’s Mizuho, Sumitomo Mitsui, Nomuraand Mitsubishi UFJ; Italy’s UniCredit and Banca Intesa; Germany’s Deutsche Bank; and Dutch group ING. Legal experts said the likes of Mizuho, Sumitomo Mitsui and MUFJ could be removed from that list, leaving their oversight to local regulators.

The examples of banks outside the TBTF group are all Japanese.  The Japanese banks are huge but quite insular and maybe this is ok.  

Anyhow, I remember quite clearly the comments from financiers around the world at the World Economic Forum in January 2009 speaking about how the world must prepare (and regulate) for the next crisis, not the last.  From this we can assume they are focussed on the banks that have the greatest impact on the banking system, at least by size.

Somehow this approach the G20 is leaning toward still feels like a “fingers in the dyke’ solution rather than a comprehensive approach.  Picking a list of banks suggests a lean towards things such as separation of investment and retail banking within TBTF institutions or limitations on international derivative participation.  This hardly sounds like a systemic approach to a better banking system. 

Its tough to be a big bank and will be hard to remain focussed on customers.  Directionally this still points to a future of banking utilities.  Lets watch over the next 3 days.  G20 are not known for big changes overnight.

Written by Colin Henderson

November 10, 2010 at 23:48

Posted in Uncategorized

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