Frameworks For The Future?
The Financial Stability Forum has, we are told, come up with a framework for the future to minimise the impact of crises in future. What does it mean for us?The Financial Times reported that central banks and regulators are to draw up detailed plans for dealing with large international banks that get into trouble in an effort to limit the fallout from future crises. So far, only general details have been reported, but they include:
* The FSF meeting once/year to discuss what to do in the event of a large international bank getting into trouble;
* Revamping capital requirements to require banks to put away larger amounts during good times to draw down on in bad;
* More focus on risk;
* Global coordination amongst regulators;
* An overhaul of bonus systems to encourage longer-term thinking;
* A process on bailing out insolvent international banks.
Cynics would say "so what?" - this is merely shutting the stable door after the proverbial horses have bolted. I wrote a piece last month about regulation, and still want to see more detail. We do need a more robust global regulatory system to acknowledge that the financial system is now global. However, the trick will be to get countries to put national interests aside for global ones. Is it fair that a taxpayer in France, for example, should be expected to pay for the demise of an American bank?
The overhaul of risk monitoring also needs thought. So far, neither regulators nor senior bank management have covered themselves with glory here as Nouriel Roubini pointed out - what will change? Yes, set aside more capital in good times, but will bankers start to find ways round this after a few good years? How much needs to be set aside, and will there be a mechanism to release it to shareholders? What will be the impact on performance ratios? We have just seen that US banks are being given more flexibility on fair value accounting, the effect of which will be to allow them to re-state the value of certain assets. European banks, however, will not benefit, so what happens now?
Equally, the bonus system (as I wrote in March) will keep lawyers and compensation consultants busy for months (if not years). At least someone stands to make money out of this, if not the bankers themselves!
Labels: Financial
posted by William Martin @ 00:04
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