May 17, 2010
By Harry Wilson and Philip Aldrick
In a marked change in tone, the Conservatives and Liberal Democrats have taken a far more conciliatory approach on banking reforms since coming to power last week.
New guidelines to govern the interplay between retail banking and investment banking are now more likely than an outright split, according to senior advisers.
Vince Cable, the new Business Secretary and an outspoken critic of the current banking system, has tempered his rhetoric. Speaking to The Daily Telegraph Mr Cable said he recognised “the seriousness of the problem and the danger of unintended consequences” of draconian measures.
Mr Cable acknowledged that introducing new capital and liquidity rules too early would “reinforce lending problems in the economy”.
“There is an inherent dilemma in making the banks more safe and in getting lending to support the real economy,” he said.
In its policy document last week, the coalition government pledged to “establish an independent commission to investigate the complex issue of separating retail and investment banking in a sustainable way”. But now instead of splitting retail and investment banking activities, advisers are discussing rules on cross-subsidies between the businesses, which would ensure that depositors are protected if the “casino banking” side of a bank gets into trouble.
The restrictions being discussed would mean banks being limited in how much money their retail arms could lend to their investment banking divisions, which in the past have taken advantage of the cheap money to fund their riskier activities.
One adviser described the fear created by last week’s announcement of the establishment of a commission as “unhelpful”. The prospect of the forced break-up of banks, including Barclays and Royal Bank of Scotland, caused shares in RBS to lose nearly 9pc of their value last week.
“The taxpayer is a large investor in the banking industry and if we are to get that money back, this type of news is not helpful,” said one senior insider.
Privately, sources close to the Government admit that the commission is unlikely to be that important to the future shape of the UK banking industry, with Britain unlikely to go it alone on new regulations and likely to follow in large part the lead taken by the US authorities.
Chancellor George Osborne has been in regular conduct with senior US administration officials, including Paul Volcker, the former Federal Reserve chief, Timothy Geithner, the Treasury Secretary, and Larry Summers, director of the National Economic Council.
“The commission is likely to be overtaken by what we see coming out of the US, as well as any EU initiatives, and once the US has decided on something it will be very difficult to go and do something entirely different,” said one senior adviser.
Bonuses will be another area in which the Government will be looking for international agreement. Recent reports have indicated that several major City investment banks are looking at ways to circumvent regulations on multi-million pound payouts to staff.
January 18, 2010
Yahoo New/ Reuters
By Steve Eder
JPMorgan Chase & Co (JPM.N) on Friday announced a record $9.3 billion payday for its investment-banking employees, setting the stage for competitors like Goldman Sachs Group Inc (GS.N) to also make eye-popping payouts.
On a per employee basis, JPMorgan investment bankers, sales staff and traders, on average, are set to make about $379,000 for 2009, up more than $100,000 from 2008, when the broader financial sector was mired in crisis.
“People looking at it from the outside look at the dollars and say they are high,” said Kenneth Raskin, the head of law firm White & Case’s executive compensation practice. “There is no question the dollars are high. The question is whether they were deserving.”
Median U.S. household income in 2008 was $50,303.
Michael Cavanagh, JPMorgan’s chief financial officer, told reporters that even though pay is up overall, its investment bank still reduced the percentage of revenue that it set aside for pay, to 33 percent, from 62 percent for 2008 and historical averages of about 44 percent. Its investment bank had one of its strongest years.
Analysts also expect Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N), which report their results next week, to show an upswing in pay. Citigroup Inc (C.N), however, could pay commercial and investment banking bonuses for 2009 that are similar to 2008 levels, sources told Reuters.
Banks across the industry have changed their compensation plans to give managers more of their pay in the form of stock that must be held for multiple years. This sort of deferred compensation is meant to curb traders and others from taking short-term risks that could harm the investment bank several years later.
Changes in compensation plans, however, have done little to bring down overall pay figures and quell public outrage over pay.
The Wall Street Journal on Friday reported that the top 38 U.S. banks and securities firms are on pace to pay their people $145 billion, based the newspaper’s analysis.
The public anger over banker pay led the New York Times to call on Congress to pass a one-off windfall tax on banker bonuses. Britain plans a one-time tax of half of banker bonuses above 25,000 pounds ($40,675).
Banks, which now face President Obama’s bailout tax, have so far been successful in beating back other reforms, including plans for a consumer protection regulator.
The resistance of the banking industry to roll back pay is infuriating and short-sighted to some, especially with high unemployment and people losing homes to foreclosure.
“These people need some perspective on where we are and what they have done,” said Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University.
October 13, 2009
The battle to reform the American banking system needs to include reimposing the barrier between investment banking and depository banking (Glass-Steagall), pay incentives based on what is best for Americans and not just the top executives, the end of too big to fail, and other changes which are frequently discussed by financial writers. These are vital issues.
But there is more to the battle for reform than you might know.
New York Versus the Rest of the Country
If you are happy with the banking system, and don’t think it needs to be reformed, then you probably work for one of the banks headquartered in New York.
Indeed, the banks outside of New York have acted much more conservatively, used more conservative capital ratios and less leverage and gotten less involved in credit derivatives and other speculative investments.
Buy a banker in the Midwest a drink, and he will probably rail against the giant New York banks for causing the financial crisis, costing the smaller, better run banks a lot of money and huge fees, and driving many smaller banks out of business.
And even within the Federal Reserve, what the New York Fed and Bernanke are saying is wholly different from what the heads of the regional Fed banks are saying. The Fed banks in Philadelphia and Kansas City and Dallas and elsewhere disagree with what the New York Fed and Fed’s Open Market Committee are doing. See this and this.
So the battle isn’t between bankers versus outsiders. It is between the giant New York money-centered banks and the rest of the country.
Congresswoman Kaptur said last week:
We used to have capital ratios. We need to get back to them. Ten to one. For every dollar in your bank, you can lend ten. You know what J.P. Morgan did? A hundred to one. And then with derivatives, who knows how much?