Follow Us

Follow us on Twitter  Follow us on LinkedIn
 

03 February 2010

FT: “Volker rule” and “Obama levy” attract the attention of bankers and regulators around the world


The Financial Times reports that the debate on these two proposals is worldwide and that bankers will in the end accept some of the ideas under discussion. A global levy is the proposal that appears to be gaining support fastest.

The Financial Times reports that the debate on Obama levy and Volker rules is worldwide and that bankers will in the end accept some of the ideas under discussion. A global levy is the proposal that appears to be gaining support fastest.

There are at least four competing ideas under discussion among regulators, politicians and bankers. These include the extension of existing regulatory initiatives; the introduction of contingency capital planning; the rewriting of rules around different capital instruments, such as bank bonds; and a full-scale adoption at G20-level of a form of the Obama levy.
One big European bank is pursuing an agenda to put all investors on the line in the event of a bank failure – a radical proposal that would necessitate a rewriting of company law. “What you really need,” said the bank’s Chief Executive, “is a resolution framework that specifies that 100 per cent of a bank’s equity is wiped out, 50 per cent of subordinated debt goes and, say, 25 per cent of senior debt.”
It is the US proposals of the past few weeks that have really got people talking, however, polarising opinion at home and abroad. While Asian regulators have stayed out of the debate, Europeans have criticised aspects of the US administration’s effort to shrink what it sees as banks’ risky businesses – prop trading, hedge funds and private equity.
“The situation is completely different here and the system that was in place has not worked badly and does not need to be overhauled,” said one French government official. Pierre de Lauzun, Deputy Director-General of the French Banking Federation, told the Financial Times: “The content of the Obama plan is not convincing because it would be difficult to enforce and it won’t change things significantly. In France we prefer to go with the Basel process.”
The French and the German governments generally oppose any moves to split up their universal banks, arguing that their biggest banks survived the crisis relatively intact and that splitting them could lead to instability rather than a safer system.
Europeans are more divided on the question of whether to tax banks to pay for future financial rescues. Some, such as Juergen Stark of the European Central Bank, worry about the “moral hazard” of setting up a fund – either with taxpayer money, or via a bank levy – because it would temper the disincentive to fail.
FT article (subscription needed)


© Financial Times


< Next Previous >
Key
 Hover over the blue highlighted text to view the acronym meaning
Hover over these icons for more information



Add new comment