I owe readers an apology for the theme of this column. Several of them know the dossier on which this column focuses better than I do, and furthermore the international press widely reported on it last week. Why am I returning to it, then? For two reasons: a) the repercussions in the EU of the new orientations of the US president have not, in general, been discussed (nonetheless, I would like to underline the very important response provided by the German minister of finance, discussed in our bulletin yesterday); b) the economic press is addressed to specialists and takes a historic and technical background on the subject for granted, which in fact is often ignored or even forgotten, it must be said, by politicians. I regard myself as a non-specialist and in an effort to summarise events, I find myself subject to a wealth of qualified opinion and individuals who prefer not to be quoted.
The return of Paul Volcker. Everything began with last Thursday's press conference (21 January) at which Barack Obama expressed his indignation at the behaviour of the major banks that had resumed the worst habits of the past. He announced the intention to: a) reintroduce separation between commercial banks, which finance economic activity, and investment banks that use their own funds, and the funds of their clients, to execute artificial operations of speculation that are very complicated; b) reduce the size of financial institutions in an effort to prevent them becoming too big to fail and subsequently compelling the authorities to rescue them in order to prevent the crisis contaminating the whole system. The imposing Mr Paul Volcker (2 metres tall, 83 years old) was at his right hand side while he made these announcements. Even when he says nothing, Mr Volcker is a force to be reckoned with; just look at his photo standing at the president's side, a head taller than him, and you will understand what I mean. The former president of the Federal Reserve, Paul Volcker, has been calling for years to get back to an updated version of the Glass-Steagall Act which was introduced in 1933 to separate the two categories of banking activity. This provision was removed in 1999 and paved the way for abuses being committed and the crisis. By backing the position of Mr Volcker, Barack Obama explicitly quoted the former, whose physical presence at his side proved symbolic, following months and months of his remaining in the shadows.
The reaction from the US financial world was immediate, with falls experienced on the stock exchanges and negative press from the financial world. Their response was that if the US is to be efficient, the big banks must be able to offer a maximum variety of services. The indignation, however, displayed by President Obama was explicit. The thrust of his argument was that he was witnessing the record profits of the past and the same absurd remuneration being paid to traders and the heads of many of the banks, which refuse to make any loans to small and medium-sized enterprises. (Goldman Sachs said, the day before the speech, that $13 billion in profits had been made and $16 billion in bonuses had been paid out to its personnel, but analysts had indicated that most of the profits resulted from the buying and selling of shares, very often achieved with the bank's own funds). Obviously, nothing about this is simple, and objective commentators recognise that technical problems exist and that mega-banks dispose of unlimited financial resources to influence the press and the political community. Nevertheless, it would appear unthinkable that Barack Obama will back down on the essential part of his far-reaching orientation.
A fallacious argument. To my knowledge, European observers have not underlined the repercussions that US developments could have on the EU's current work in progress (see this column yesterday). The European banking community is demanding that restrictive rules that do not exist in the US are not introduced in Europe if we want EU financial centres to remain competitive. This objection fails to pack a punch if the US president's new orientation is put into practice. It should also be added that demand for standard international regulation is widely adhered to. The G20 requested that the Financial Stability Board (FSB) examine the new scheme for financial rules, and its “recommendations” will be ready in October. We will, therefore, have to wait for its definitive conclusions. Nonetheless, following the US president's press conference, the FSB did not remain silent and released a press statement to which its president, Mario Draghi, the governor of the Bank of Italy, added a few declarations.
Tomorrow, this column will complete this overview with a number of considerations being made on three aspects: the FSB statement and the comments made by its president, Mr Draghi; the fixing of the date of the trial, in France, against Jerôme Kerviel, the notorious trader who, two years ago, lost his bank several billions of euro; and proof that certain bankers actually support further regulation. (F.R./transl.fl)