The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘banks

American rhetoric turns protectionist


President Obama is beginning to take on the mantle of an embattled and potentially protectionist leader with this comment in Yokohama today.

My interest is less politics and more Banks. Such inward looking approaches will inevitably result in inward looking institutions within the US, especially those with government ownership, or essentially government protection.

BBC http://www.bbc.co.uk/news/world-asia-pacific-11748433i

Addressing business executives in Yokohama, President Obama said the economic crisis had shown the limits of depending on US consumers and Asian exporters to drive growth.

Written by Colin Henderson

November 13, 2010 at 15:42

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Global Governance – Canadian perspective – Paul Martin


I am live blogging from the Friedrich Ebert Stiftung/ Munk Centre/ University of Toronto conference on Global Economic Governance.  The keynote speaker is Paul Martin (PM) who is up next.  Introductions first from Werner Puschra, Director, Friedrich Ebert Foundation, New York Office and John Kirton, Professor, International Relations Programme, G20 Research Group, Munk School of Global Affairs, University of Toronto.  Basically Martin a former PM of Canada is being introduced as the ‘father’ of G20.

martin

Notes on Martin begin here:

Global governance requires a global steering committee covering these issues.

  1. breadth of issues
  2. priority
  3. results
  4. ability to reach out to those not represented in the G20

Nations will negotiate in their own self interest.  More and more each country’s self interest is reflected in global interests. Members are members because of power and position, but their responsibilities go much further.

Three examples.

  • poverty
  • banking
  • climate change

Food shortages are and imbalances in the food chain, especially Africa.  Governments are downing tools on Africa and awaiting the next banking crisis.  Speaking at length about Africa, mentioning Burquino Faso and other countries where the crisis is desperate.

Climate Change:  The next meeting is November in Mexico.  Mistake to not have a G20 parallel meeting of leaders on climate change.  Some movement earlier this year in Europe but will G20 pick it up.

Banking:  todays financial crisis shows just how unprepared the economies of the global economy are.  Too many countries are having to confront devastated balance sheets (Greece).  Notes the UK Government budget this week.  If there is another banking crisis and it doesn’t look good in Europe then the impacts will be enormous.  Need a protocol to unwind banks.  If a bank is too big to fail, it is too big.

Principles of banking.  Strengthen national regulation but that is not enough.  Suggests the FASB is the best governance against systemic risk.  Standards must be mandatory.  Peer review ass proposed is inadequate.  Much talk of ‘future banking crisis’.  If bankers are expecting to act globally, then the referee must be global.

Bankers, shareholders must understand when they cannot take excessive risks and accept the profits with Government support in bad times is no longer involved.

G20 is no longer a club of self interest.

Rise above self interest and nationalism.  The current definition of sovereignty is outdated (1648).  G20 must be talking about what is required to protect sovereignty in the context of todays global environment.  In the last few months the last vestiges of old style sovereignty have been stripped away. (Greece, Portugal)

What the American and European governments have to come to terms with is that when the Chinese, Indian and Brazilian economies stumble as they grow there will be no bailout package large enough.  The host country can significantly influence the G20 agenda.

Don Newman, CBC is up with Madelaine Drohan, Canadian correspondent The Economist to facilitate questions

Bank Tax.  peripheral issue.  PM …No government should pass a law it cannot enforce.  The largest and fastest growing banks are state owned (China, Brazil)

Madelaine:  some do not like the G20.  How will it relate to the UN.  PM:  membership was picked by Martin and Larry Summers (?).  To reopen the membership would open a pandora’s box.  However it is important to reach out to all countries.  Having said that it cannot rival the UN.  G20 is a deliberate group that makes recommendations.  At the time of UN reform the commission recommended a group of 20 nations provide some sense of direction to the debates.   The numbers in the UN work against ability to make a decision.

Audience:  view on fiscal exit strategies. PM … (Andrew – known by Martin).  If you have slow economic growth and you cut further you will slow growth.  ‘The government is not going to be in my pockets forever so I will have more confidence’.  If the UK economy withstands yesterday budget it will be in good shape in 2 years.  There is no cookie cutter approach.  Martin is a believer in draconian budgets.  He supports the UK approach.

Audience:  question on Canada’s role in global peace.  PM.. Canada’s voice should be heard.  Canada can take a leadership role in certain areas and one key is Africa.

Audience:  Food security:  would fair trade be a better model.  Africa’s inability to penetrate foreign markets but the major issue is Africa’s inability to feed itself.  Africa should be a breadbasket.

Audience:  Is it time for a financial transactions tax.  PM …  this is separate from a bank tax.  Answer is fudgy .. generally thinks its worthy of consideration.

Audience:  are you considering re-entering federal politics.  PM …  No 🙂

Audience:  global bank regulation and standards for liquidity and capital.  PM … extend review to all members of UN or IMF.  A model could be the World Trade Organisation (WTO).  Usage of peer reviews and recommendation for approval by the Financial Stability Board (FSB).  Certain degree of enforcement by global banks seeking common standards across countries.  (Speaking to the quality of Canadian banks) “I was the guy who toughened up the Canadian bank rules and I got little push back from the Canadian banks”.  PM Anecdote:  Martin as PM wanted to visit head of OSFI (Canadian bank regulator) but David Dodge Governor of Bank of Canada told him that was impossible unless accompanied by the Governor of the Bank of Canada.

Madelaine;  on influence of the G20 host.  PM .. yes the host country could scuttle G20 outcomes if they disagree because of their control over the agenda.

Thats it.  Back later for keynote from Jomo Kwame Sundaram, Assistant Secretary-General for Economic Development, Department of Economic and Social Affairs, United Nations, facilitated by Chrystia Freeland, Global Editor at Large, Thompson Reuters (previously US editor Financial Times)

Written by Colin Henderson

June 23, 2010 at 09:27

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The true meaning of innovation in financial services lies in the plumbing, not UI


This piece on internet and evolution of financial services has the best quote I have seen for some time.

“these companies have merely built nice UI’s to Wall Street”

How To Disrupt Wall Street | The Business Insider

As I see it, these companies have merely built nice UI’s to Wall Street: Mint connects to your banks and Square to Visa and Mastercard and the bank that issued the credit card. If people at farmers’ markets use credit cards instead of cash, that means more money for Wall Street, not less.

Brilliant. I take no issue with the likes of Mint, and Square which are nice new innovations. which may well result in big changes later. However they are hardly game changing today. Game changing would mean that in 20 years time we might see future headlines such as:

  • Headlines – 2030
  • bank branches are no longer ….
  • banks have largely been replaced by ….
  • customers obtain financial services today from ….
  • Hedge funds have replaced …..
  • A new type of investment fund has …..

In order for such headlines to appear new sets of new companies will be needed, but more importantly companies that are based on dramatic shifts and simplicity in how money moves around. Money moves today amongst people and banks in a certain way today. This is the plumbing of banking. Payments networks, clearing systems and ATM networks are how money moves around. Mint for example does nothing to change that. In fact arguably Mint makes banks stronger by providing new reasons to stay with the current bank because the functionality Mint offers is based on access to existing plumbing.

The financial systems that comprise the plumbing and the operators who sit over the plumbing such as Banks, aggregators (eg Yodlee, Cashedge), Card companies (eg Visa, MasterCard), all serve to actually increase the complexity and also the probably, the cost of moving money around. More players means more competition, and it also means more aggregate costs in the system. For consumers they must beware new sets of fees which in total increase the overall costs of their financial services.

Let us not forget that one of the causes of the financial crisis of 2008 was the lack of transparency embedded in the financial products that served the securitization markets. Those markets remain, and the methodologies have yet to be re-invented. Government regulation will not fix that problem.

For me true innovation will only occur when plumbing changes. Despite the recession the world is awash in cash, seeking better returns, yet the ‘system’ generates very very low real returns on cash investments when compared to the interest rates which are paid by people on loans, credit cards and to a lessor extent mortgages. The interest rate differential between that paid, and that earned is being eaten up by more and more players. This has resulted in a shift to more and more fees because the interest spreads just don’t offer enough return to fund the ‘system’. This is a snowball effect that can never be good for people. Forget about bank bonuses. Those are asymptomatic of an inefficient system that is driven by driving people harder and paying them with large bonuses to make an inefficient system work by creating ways to hide the inefficiency – lipstick on a pig. Bonuses are just one element of cost in an inefficient system.

Thus true innovation can only occur when we see elements of plumbing removed, costs removed, and money able to move between people with less steps and costs thus eliminated. Included in the plumbing are banks and their systems, payment networks and their systems, card providers and their systems, and unfortunately this includes the new UI providers referred to in the article above.

When we see players changing plumbing such that existing systems are bypassed, and made no longer relevant to a transaction, we will have innovation. When that happens players will change and eventually be eliminated, and those headlines may begin to appear.

Written by Colin Henderson

January 23, 2010 at 20:18

Bank tax, bonuses and unintended consequences


I was a little surprised to see the UK conservatives support a global bank tax. In any event the amount of the bonus at JP Morgan Chase caught my attention, so I took a look at their capital base. With tier 1 capital of $133 bn, the bonuses represent a significant 7% of capital.

Ironically, the international tax will produce the unintended consequence of reducing capital even more., within the limitations of Basle. It is hard to see how a tax would improve governance and capital retention.

Osborne to push for global bank levy

George Osborne, shadow chancellor, said that it was “unacceptable” for banks to be paying large cash bonuses when they should be defending themselves against future disaster. On Friday, JPMorgan Chase, the US bank, kicked off the latest bank reporting season by announcing that it would pay $9.3bn (£5.7bn) in bonuses this year.

"Anders Borg, Swedish finance minister, told the FT that the Americans “have taken a lot of interest” in his country’s stability levy, suggesting some international convergence on the need to insure against the risky behaviour of banks.

Written by Colin Henderson

January 16, 2010 at 03:13

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Big banks might move to Hong Kong | FT


I was listening to all the pundits making predictions for 2010 over the weekend and one struck me in particular. It was Chrystia Friedland US Managing Director of Financial Times on Fareed Zakaria GPS, and she predicted big banks moving their headquarters to Hong Kong, in response to regulation and taxes. It was a one liner comment, with no follow through, but there is no reason for an investment bank which can operate virtually not o optimise its HQ location. Interesting. One more point for the rise of emerging economies.

Written by Colin Henderson

January 4, 2010 at 08:48

Mervyn King calls for banks’ break up per “The Great Unwinding” post in Feb


It is with some relish I see Mervyn King agreeing with me from last February.

King calls for break-up of banks | FT – Oct 2009

Mervyn King, governor of the Bank of England, called on Tuesday night for banks to be split into separate utility companies and risky ventures, saying it was “a delusion” to think tougher regulation would prevent future financial crises.

The Great Unwinding | part 1 of 3: 2009 – 2012 | The Bankwatch – Feb 2009

This will effectively split the financial community into two distinct sets:

  1. financial utilities – significant operating restrictions in light of implicit and explicit government guarantees underpinning the business
  2. risk takers – not clearly defined as yet – will be dependent on regulation applicability

I expect my commission cheque is in the mail.

Full Text of King speech at in Edinburgh on 20 October 2009: speech406 pdf

Edit:  King provides attribution to John Kay here written Sept 09.

Written by Colin Henderson

October 20, 2009 at 14:57

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Bank retail operations have not recovered despite profits


In this piece at the NY Times, Krugman points out the obvious that despite profits, Banks’ retail operations have not recovered. The large profits we are hearing about are all centred in the Investment Banking units.

I would add that it will take more than a turnaround in consumer confidence and reduction in unemployment. It will also take time to work through the de-leveraging impacts of consumer desire to reduce debts and save more for future crises while this one is firmly in peoples minds. For everyone who is still working they know of someone who is not, and that memory takes time to erase.

The Banks Are Not Alright

But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.

Written by Colin Henderson

October 19, 2009 at 10:49

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