Welcome to Finextra. We use cookies to help us to deliver our services. We'll assume you're ok with this, but you may change your preferences at our Cookie Centre. Please read our Privacy Policy.
For Finextra's free daily newsletter, breaking news and flashes and weekly job board.
The recent discussion about the virtues of a re-introduction of Glass-Steagall may have taken a wrong turn. Glass-Steagall was introduced to physically separate lending from securities underwriting and trading. The new debate is not about the same concept, but rather about the delineation of banking services to clients from proprietary trading activity. It is no longer feasible or helpful to try and separate lending from securities – they are wholly intertwined. Any forced separation would be hugely disruptive to the banking industry – with inevitable downstream impacts.
What is being discussed in regulatory circles is a restriction on banks behaving like hedge-funds. Is it appropriate for a high-street bank that benefits from implicit sovereign guarantees and has retail shareholders to risk depositor and shareholder capital in high-risk markets? Were the shareholders and depositors aware of the implicit risk and change in business model? I’m sure they weren’t. I even know some investment bank staff who unaware that their firms had become so dependent on risking their own money.
The de Larosiere report does not state outright that banks should refrain from proprietary trading and principal investment. It does however (Recommendation 8) talk about “appropriate capital requirements on banks owning or operating a hedge fund or being otherwise engaged in significant proprietary trading…”. Regulators could achieve the separation by imposition of higher capital charges on proprietary activity – it would become uneconomic.
A very senior regulatory advisor recently said to me: “If you want to behave like a hedge fund – you should be a hedge fund”. It’s very hard to disagree,
Member since
19 Mar 2009
Location
Blog posts
5,626
Comments
6,042
13 Jan 0 3
15 Nov 2019 0 3
04 Nov 2019 1 3 1
09 Oct 2019 0 3 1
This post is from a series of posts in the group:
A community to discuss the future of financial services and any other interesting trends, strategies, ideas, views.
Chris Ibbitson
22 Jan 0 3 1
Sheza Gary
16 Jan 0 1
Stephen Grady
07 Jan 0 1
Shane Meredith
18 Dec 2019 0 5 5