Regulation

Pay structures belong under regulators’ purview

18 Sep 2009

Incentives influence behaviour. So the Federal Reserve should scrutinise pay practices as it considers US banks' safety and soundness. Making this focus clear has benefits too. It may encourage banks to restrain themselves, and it gives examiners clout if they don't.

Obama branches out from Wall Street blame game

14 Sep 2009

One year after Lehman s bust, the US president spread the blame beyond financiers. That s partly politics given Obama s overstuffed agenda. But he s right that a collective failure of responsibility took place. Remembering that will help avoid, or at least delay, a repeat.

Blankfein repeats himself – but at right time

9 Sep 2009

The Goldman boss s comments on banking reform and compensation are hardly earthshattering. But his exhortations to triggerhappy lawmakers not to stifle risktaking completely and to ensure regulators are properly equipped make sense, even if they are partly selfserving.

Regulatory assault may force strategy questions

9 Sep 2009

Investment banks used to post 20%plus returns on equity. But though they again stormed ahead in the first half, vengeful regulators could force ROEs down sharply. It might even make boring old retail and commercial lending look sexy at least for a while.

Industry’s derivatives reform: too little, too late

8 Sep 2009

Despite dealers attempts to reduce counterparty risk and improve transparency since Lehman s collapse, it looks as if US watchdogs aren't convinced. As politicians return to Washington from their summer breaks, Congress appears poised to crack down.

Lightbulb ban violates simple economic principles

1 Sep 2009

The EU ban on incandescent lightbulbs imposes substantial hidden costs on the economy. Fluorescent bulbs don t work as claimed and are difficult to dispose of. If the new bulbs were better, consumers would choose them naturally, and could be nudged to do so by a carbon tax.

Mark-to-market exceptions should be asymmetrical

28 Aug 2009

A BIS committee has offered guidelines for valuing financial assets part of the global retreat from pure fair value accounting. That s right: market values aren t always reliable. But the deviations are more dangerous when prices are too high than when they are too low.

FDIC finally learns from its own history

19 Aug 2009

The US bank regulator is starting to insert profitshare clauses in its failed bank asset sales much as it and the RTC did during the S&L crisis. It s a fair trade for shouldering the bulk of any losses and shouldn t impede deals. But FDIC could have insisted on them sooner.

Cracks could emerge in SEC crackdown

11 Aug 2009

Boss Mary Schapiro wants the US securities watchdog to chase higherprofile cases like those it recently agreed with BofA, Hank Greenberg and GE. But the fines it extracted are peanuts and could undermine its new campaign against rule violations.

Banks: don’t pay mega compensation

5 Aug 2009

Instead, stash away your bumper profits and some of those accrued bonuses to strengthen capital and prepare for a tougher regulatory regime. That s the message of an imaginary email from the world s top banking regulators to their charges, intercepted by Breakingviews.com.

BarCap bonus bonanza shows need for tough reform

3 Aug 2009

A stellar first half has led to accruals for some big paydays. The public will rightly recoil. While Barclays didn t take taxpayer capital, it benefited indirectly from cheap state liquidity and loan guarantees. Investment banks need a more constraining regulatory regime.

Co-opetition runs course for Apple and Google

3 Aug 2009

Mutual backscratching among Silicon Valley s leading lights was already in the Obama administration s sights. Another federal government hot button, mobile telephony, is now in the frame, and Google s Schmidt is leaving Apple s board. A less clubby future looks likely.

SEC wrist-slap reinforces need for Ken Lewis to go

3 Aug 2009

The Bank of America boss is clinging on to his job even after the regulator accused the firm of misleading shareholders about Merrill bonuses. True, Lewis seems belatedly to be drawing up a succession plan. But that s slow going. And he should have been gone long before now.

Derivatives rules should target low-hanging fruit

30 Jul 2009

Key US lawmakers want standardised derivatives to be centrally cleared and traded on exchanges. But there s little consensus over what standardised means. If the rules try to cast the net too wide, it could bog legislation down or backfire by increasing risk.

Lawmaker holiday trumps Obama’s financial reforms

28 Jul 2009

The US Congress is about to hit the beach, leaving the president s ambitious agenda hanging. That s probably good remaking the banking world is not a task to be rushed. And Obama needs to get it right the first time.

Derivatives are largely an insiders’ game

23 Jul 2009

Five big banks account for 80% of the total derivatives held by 100 large US companies, a new report says. That could be bad news for those trying to stave off greater regulation, because it undermines the idea that derivatives are crucial to the health of corporate America.

Obama’s plan a double blow for derivatives dealers

22 Jul 2009

US regulators want to oversee all firms that deal in unlisted derivatives. That makes sense and could head off future AIGlike meltdowns. Dealers won t like the scrutiny, but they re more afraid of the government s other big idea forcing derivatives to be traded on exchanges.

Tory bank plans deserve two cheers

20 Jul 2009

The UK opposition which is likely to be in government in a year has many good things to say about how to prevent future bubbles. But the Tories are too fixated on abolishing the FSA. This, at best, would amount to rearranging the deckchairs.

Fiction of Fed independence is worth defending

15 Jul 2009

At least 175 economists have signed a petition in support of the US central bank s independence. The Fed's supposed autonomy is to some extent illusory anyway. Even so, the appearance of independence helps its credibility and effectiveness.

It’s too early for the SEC Preservation Society

15 Jul 2009

That s a big part of the agenda of the Investors Working Group, cochaired by two former SEC heads. The body wants to give the agency more power and resources. But without a clear examination of the SEC s failings and the origins of the crisis, this is cart before horse.