Financial Stability News

News about financial stability, central banking and theory of money

Tag Archives: Vicker’s report

Big banks are simply too big

Also investors may think so. As FT banking commentator Patrcik Jenkins notes in this post, banks are trading at very low book/values and investors may actually benefit from breaking up large conglomorate banks:

Shareholders appear to be coming to the view that banking conglomerates do not make economic sense. There are many factors subduing banks’ stock market values, including the eurozone crisis and global regulatory uncertainty. But another brake is investors’ fading faith in size for its own sake. Most western banks – especially the universal ones comprising retail and investment banking under one roof – are trading at a discount to the book value of their net assets.

This is a view that Andrew Haldane of the Bank of England also has voiced earlier, indicating that proposals for splitting trading and commerical banking actually may be in the banks best interest. A clean split – ala the Volcker rule – would then be preferable to a holding company solution as proposed by the UK Vickers commission. Time will tell which will be the choosen one.


Japan and Canada warn on Volcker rule impact

Progress in implementing the Volcker rule in the US is slow, while the conservative government in the UK is rapidly moving along with its own version, published last year by the Independent Banking Commission. This article in the FT notes that other countries (notably Japan and Canada) are now getting cold feet about the indirect repercussions of stricter rules for proprietary trading in the US and UK.

They argue that prop trading provides much needed liquidity and forcing US banks to pull out would cut demand and add strains to the already stressed market.

The report by the US Treasury on implementation of the rules was not very specific, with several hundred open questions for hearings. It is a well known secret that neither the Fed nor the Treasury is favoring the rule. It remains to be seen if it will ever be implemented in the US. The UK, on the other hand seem closer to some sort of proposal. Not so surprisingly, given that their banking sector currently is > 500 % of GDP. They can ill afford another public bail-out.