The Bankwatch

Tracking the consumer evolution of financial services

Perhaps a smart proposal coming from the Liikanen committee

An interesting but probably expected if I think about it development anticipated to be coming from Euro banking regulation.  When confronted with US and UK approaches why not pick both.  In this case though this might be ok in terms of being more more practical to install and actually have the required effect.

EU banks face ringfence on trading assets | ft.com

With a month to go until the Liikanen review is due to be completed, people close to the project said a clear majority was emerging in favour of a combination of the US and UK approach to structural reform of banks – taking elements of both the Volcker and Vickers rules.

And the outcome might look like …

The central tenet of the US Volcker rule is a ban on so-called proprietary trading – activity that involves betting the bank’s own money. Britain’s Vickers commission concluded that retail banking activities should be ringfenced from universal banks’ investment banking operations.

Banks will hate this, but rest assured bankers will not.  Bankers seek a return to basic banking.  Investment banking can carry on doing what it does well.  However it is not fair that investment banking have access to cheap (free) capital from retail banking that it can turn around and earn risk based fees without that capital bearing some requisite cost.

I have been involved in startups for the last 6 years and the concept of obtaining zero % financing is unthinkable.  Risk weighted cost is the order of the day, and investment bankers understand that better than anyone.  They just don’t like it but that’s no reason to not do it.

I have written before about why I strongly support the ringfence concept despite objections from some stellar industry types who basically fall into the defense of impracticality or unfairness.  Either argument fails when you consider the average savings account of your mother, who is getting practically no interest today anyway, yet bearing all the risk of investment bankers using her money.  In short there is no defense.

I like this new anticipated approach because the identification of self traded assets is relatively simple despite the inevitable arguments otherwise. 

Written by Colin Henderson

September 9, 2012 at 23:35

Posted in Uncategorized

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