G20 representatives support US president. The arguments for, and the positions in favour of, strengthened and efficient regulation of financial activity are growing. It is significant that the Financial Stability Board (FSB) responded very positively to the new orientations proposed by the US president in favour of: a) the separation of commercial banks, which finance the economy, and investment banks that speculate on shares, interest rates and the prices of raw materials; b) the introduction of limitations on the size of financial bodies in an effort to prevent them becoming too big to fail and obliging the authorities to step in to save them; c) increased taxation on banks' profits. The FSB, as we are aware, is made up of governors from the central banks and government representatives from G20 countries. Its task is to outline future financial regulation. At the end of last week, it published a press release that gave a positive response to the US orientations, which are, in its opinion, likely to help reduce the risk of “moral hazard” contaminating financial activities. The FSB believes that Barack Obama's press conference (broadly summarised in this column yesterday) provides a new boost to the determination to push reform through and strengthens the FSB's commitment to work towards this end: this is a signal which all G20 countries should flag up.
The press statements explain that the US orientations are among the options that the FSB is currently studying in the context of the risks of a banking body becoming too big to fail. The FSB will present its conclusions in October, in the form of recommendations but an interim report will be published immediately after the G20 June summit. Its final report will cover financial regulation as a whole - capital requirements liquidity and debt; a ban on over- the-counter operations; and the requirement that the buying and selling of financial products is done transparently.
The FSB president, Mario Draghi, the governor of the bank of Italy, nonetheless, warned that they should not expect an “immediate and universal” solution. There is no magic formula valid for everyone and the size of banks only accounts for one criterion; other factors should be taken into account, such as the complexity and opaque nature of the operations the banks carry out. Rules should be harmonised and also take into consideration the different situations that exist. Nothing is in the bag yet.
Beggaring belief. In the meantime, official sources in Paris declared that the trial of Jérôme Kerviel would take place in June, following several adjournments. Kerviel is the trader who in 2007 lost his bank €4.9 billion in operations involving billions of euro. Kerviel's lawyers have already made known the basis of their defence - the heads of the bank (the Société Générale) could not have been unaware of the operations he was carrying out because over the two years of his investments, real or fictitious, €800 billion was involved. This is twice as much as France's national budget; how could this not have been seen? Kerviel should not have to pay for everyone. It will be down to the judges to decide who is responsible. But whether those responsible are one or several people, the important thing is that the absurdity of banking activity should clearly be highlighted. For two years, a single trader was responsible for amounts that are twice as big as that of the French budget! And some banks want to get back to the situation again!
But hold on a minute - not all of the banking community wants to get back to this situation. We are beginning to read interviews with bankers denouncing the abuses committed, and who are calling for a return to a banking system that is cleaned up and useful to everybody.
The EU gets its moment. I would like to point out in my conclusion that the ideas expressed by the German finance minister ,Wolfgang Schaüble, (quoted in EUROPE 10063), in which he commented on the press conference of the US president and described developments in the US as wonderful because opportunities for finding an international solution had subsequently increased. Schaüble hopes that the Europeans will already be able to submit their harmonised orientation at the international conference on financial regulation next May in Berlin.
This objective ought to encourage the European Parliament and EU Council to speed up comprehensive implementation (they are both co-legislators) of European regulation. This is even more the case given that in the meantime, the Davos World Economic Forum will be kicking off, to which the big banks will flock and undoubtedly attempt to launch their counteroffensive.
(F.R./transl.fl)