The stupidity of new banking regulations
IT’S said of Generals that they’re always ready to fight the last war. That they would have been just perfect at fighting WWI in 1939, that in 1914 they knew just how the Crimean War should have been done. But at least they did actually work out how to deal with the last one: this is more than can be said for the people trying to reform banking right now.
European banks will be forced to split out risky business such as proprietary trading under proposals set out in a report on how to make the region’s lenders safer.
The report produced by a European Union advisory group, chaired by Bank of Finland Governor Erkki Liikanen, recommends a series of changes to the way banks are structured and funded to make it easier for them to be wound down if they get into trouble.
Under the proposals, proprietary trading, which involves banks attempting to profit from trading using their own shareholders’ funds, will in future have to be placed within a separate legal vehicle to ensure that it poses no risk to a lender’s deposit-taking business.
Of the banks that went bust in London not a single one of them went bust as a result of the mixture of investment and commercial banking. In fact, none of the investment banks did go bust. The banks that did fell over because of plain old lending too much cash to the wrong people.
HBOS screwed up by offering far too many mortgages to far too many people who couldn’t repay them. Lloyds went under because they took over HBOS. RBS sank under the hubris of paying too much for ABN Amro, nowt else. Northern Rock just lent too much to too many people who couldn’t repay it. The Irish banks: too many property loans. The complete disaster that is Spanish banking? Property loans again.
The only exception is AIGFP and they were an insurance company not a bank. Lehman? It was the US bank that fell over. And even then it was more about their real estate investments than anything to do with “trading”.
These new bank rules might be a good idea: they might not be as well. But the one thing we now for certain about them is that they wouldn’t have changed a single damn thing about what happened in 2007/8. But we’re told we must have them to stop 2007 happening again.
As I say, at least the Generals are usually ready to fight the last war.
Photo: 1840 – A crude woodcut satire showing Harrison luring “Mother Bank,” Jackson, and Van Buren into a barrel of “Hard Cider.” Jack Downing chases Jackson and Van Buren toward the barrel as Mother Bank crawls into it. While Jackson and Van Buren sought to destroy the Bank of the United States, one of Harrison’s election campaign promises was to reestablish it, hence his providing “Mother Bank” a refuge in this scene.