Thursday, October 25, 2012


All quiet on the Euroland front which does me no good and them neither.  Soooooo....

I've been meaning to get back to commenting on the state of banking regulation here and there but to be perfectly honest I really don't understand the state of play and everytime I ask someone supposedly in the know they claim not to know anything either.  One thing we do know is that  piece of rubbish known as Dodd/Frank, which was supposed to be up and running in July remains in the drafting room with a miriade of problems not the least of which is "the Volker Rule" which, as anticipated and predicted, has tured into a lawmakers nightmare.  Definitionally, it was always bound to be difficult but despite claims that "we're almost there" and "it will be ready by the end of the year" it has fallen afoul of the classic D.C. syndrome of the "Turf War."  You see, no less than five different entities are claiming ownership of this piece of business and while the banking boys (Fed, FDIC & Treasury) claim there are of one mind, they are not.  Lay over that the Commodities lot led by the dreadful Gensler and the SEC which is being proven to be increasingly incompetent and you have a perfect crap-storm instead of the needed cooperation.  Not that the banks care, mind you.  The longer this goes on the better for them as any solution will arrive as a result of sheer exhaustion and not as a result of meaningful compromise. To be fair, this is an almost impossible task as was suggested when this stupidist of all legislation was passed and at some point if there is a God for banks this will be recognized.

 If one really wants to limit the amount of market risk taken by governmentally insured institutions ban securities transactions entirely.  If the institution still wishes to engage in such business have it be located in a seperately capitalized subsidiary, ban funding from the parent company regulate it as just another securities firm.  While one is at it, change the status of the Goldmans and Morgan Stanlies of this world, get them the hell away from the discount window and have the compete on an equal basis with the new entities...funding from the market at market rates and NOT from their parent or sister companies..  Oh, a clear statement from the git-go that these firms are NOT too big to fail will do more to insure proper risk management than anything else.  Remember, banks die on the liability side: no funding, no bank.  If lenders are convinced there is no bail out they we act accordingly and do their homework.

Now this is going to result in probably far lower profits but hey, you can't have everything.  There is, however, the issue of the (mostly) European universal banks and the competative advantages they could have if regulation of this sort were adopted.  This is real, but it is real in a far broader context than what has been explored here.  Basel III for instance which I plan to introduce tomorrow...unless Euroland gives me an opening.  Fat chance of that.

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