FTSE 100
Dow Jones

Thursday, 29 October 2009

Kroes feat

Writing in the other pink paper John Gapper gives three cheers today to Neelie Kroes, the European Union’s competition commissioner, who he says is one of the few European politicians who understands the way to deal with the problems in the banking system. This comes after a similar article yesterday from John Kay,both of which go against the FT editorials which gave lukewarm support for the FSA/ Turner/ Brown approach of more regulation.

Gapper says that "by insisting on the break-up of the ING Group into its banking and insurance divisions – and on it divesting its US direct savings arm – Ms Kroes set a welcome precedent this week. She made a troublesome too-big-to-fail institution shrink."

Gapper says that there is a growing band of experienced hands following the Masterley line that banks should be broken up into at least 3 parts. That is actually one more than the Masterley approach because I hadn't really considered the insurance businesses found in many continental banks, but the same principles apply, and although I know very little about insurance except how to buy it, they are probably correct.

Along with Ms Kroes and his colleague Mr Kay, Gapper lists central bank governors Mervyn King, Paul Volcker and Alan Greenspan, and John Reed. Gapper says that Reed is an improbable advocate having had a hand in the creation of Citigroup, but Reed grew up in Citibank which was long restricted, but also protected by Glass-Steagall. Some might say he was pushed out by the ravenous hordes who joined Citigroup with Salomon.

Gapper says "Some politicians and regulators have argued that modern-day finance is too complex to be divided and those who suggest such divisions are being simplistic." We know this is hogwash. The attraction of retail deposits to people who want to make money from proprietary trading is obvious, as is the one way bet (heads the banker wins, tails the tax payer loses) that results from deposit guarantees. Separating the two would force the investment banks to raise their own capital and manage it wisely.

As for proposed UK and US bank reforms, Gapper quotes Terry Smith, chief executive of the broker Tullett Prebon and famously an equities analyst at UBS where he published a book debunking prevalent mishievous accounting practices, who says that Brown's plans are “like the designer of the Titanic arguing that the provision of extra lifeboats would solve the problem”.

No comments: