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eesc on tax havens September 20, 2012

Posted by Bradley in : governance , add a comment

I have been reading some of the Economic and Social Committee’s opinions, and am very struck by the tough tone of a recent opinion on tax havens (Joe Biden gets a special mention in the context of the opinion’s description of Delaware as a tax haven), published in the Official Journal at the end of July. Here’s a brief excerpt:

There are reasonable grounds for stating that the financial crisis has been driven in part by complex and opaque transactions carried out by financial operators domiciled in jurisdictions that maintain financial secrecy, causing serious loss for investors and the purchasers of such financial products. Tax havens host off-balance sheet transactions by financial institutions, as well as complex financial products that have contributed nothing to innovation in the financial sector, but generate financial instability. There is clear evidence that much foreign direct investment, especially in developing countries, comes from tax havens.

financial regulation developments September 19, 2012

Posted by Bradley in : financial regulation , add a comment

The UK Treasury is now consulting on the financial policy committee.

Today, Andrea Enria, Chair of the EBA, speaking to the EU Parliament’s Committee on Economic and Monetary Affairs, commented on the Banking Union proposals, saying the they will require a single rulebook for the EU and “a leap towards truly unified supervisory methodologies” to avoid a polarisation between the euro area and the rest. She also promised that the EBA will be working on consumer issues. Steven Maijur of ESMA also updated the Committee on ESMA’s work. EIOPA does not yet seem to have published its submission on its web page.

Next Monday the Committee on Economic and Monetary Affairs will hold a hearing with the title: “Tackling the culture of market manipulation – Global action post Libor/Euribor” (Gary Gensler will participate).

Update: here is the EIOPA statement.

hector sants letter about fsa, diamond and barclays September 19, 2012

Posted by Bradley in : financial regulation , add a comment

When the Treasury Select Committee published its preliminary report into Libor last month, Hector Sants wrote a letter to Andrew Tyrie stating that when the FSA approved Diamond’s appointment it did so having considered the fact and implications of the Libor investigation. Today, about a month after the letter was written, the Committee published the letter, a file note supporting the contents of the letter, and Andrew Tyrie’s response. As the Telegraph notes, Tyrie’s response points out that the Sants letter, supported by the file note, contrasts with statements Marcus Agius made to the Committee.

questions about ensuring financial stability September 15, 2012

Posted by Bradley in : financial regulation , add a comment

The GAO raises a number of questions about the effectiveness and accountability of the Financial Stability Oversight Council (FSOC) and Office of Financial Research (OFR) in a report published this week. The report makes a number of observations about transparency gaps in this structure. Financial stability is a context in which the relationship between transparency and policy seems to me to be complicated. The GAO would like to see more transparency, noting in its conslusions:

both FSOC and OFR could be more transparent. For example, FSOC’s minutes contain limited details about the council’s discussion and the amount of detail included in the minutes has declined over time. While some information discussed must remain confidential given potential market sensitivities, legal restrictions on sharing certain information, and the need for members to deliberate, striving to be as transparent as possible given the potential impact of some of its decisions on institutions and markets is important for FSOC. FSOC’s and OFR’s limited transparency has caused some former government officials, industry representatives, and academics to question whether they are making progress. Continued efforts to increase transparency will allow the public and Congress to better understand FSOC’s and OFR’s decision making, activities, and progress.

The report does suggest that the US arrangements for financial stability may be less skewed towards the views of central bankers than those in the EU:

although the United Kingdom (UK) and the European Union (EU) have established or are in the process of establishing councils to oversee systemic risk, in the UK and the EU the central bank has more members or more votes than other entities on these councils. In contrast, in the United States, the central bank—the Federal Reserve—has one member on FSOC and one vote among the 10 voting members. FSOC policy staff and staff at member agencies noted that the diverse perspectives of FSOC members enrich FSOC deliberations.

Whether or not bodies with responsibilities for financial stability would be better served by more or fewer central bankers is an interesting question. But it’s worth noticing in this context that some central bankers are thinking in complicated ways about regulation – and not just focusing on banks. I’m thinking about Andy Haldane in particular (for example this recent speech about the downsides to complexity in financial regulation – titled The Dog and the Frisbee).

iosco on libor September 14, 2012

Posted by Bradley in : financial regulation , add a comment

IOSCO has announced the establishment of a “Board Level Task Force on Financial Market Benchmarks” to be co-chaired by Martin Wheatley of the FSA (responsible for the UK’s Wheatley Review) and Gary Gensler of the CFTC. You can tell this is an important (Board Level) Task Force because all of its members are men.

The press notice states that:

Other international organizations and national regulators, such as the European Commission, UK Treasury, (Wheatley Review), Central Bank Governors of the Bank for International Settlement and the Global Financial Market Association, are also undertaking work on the benchmark issue.

The inclusion of the GFMA in this list of “international organizations and national regulators” seems a bit odd to me even though GFMA published a set of principles for financial market benchmarks a week ago. Much of the GFMA principles document is rather content free – a lot of high-minded language but not much apparent bite. The possible exception to this is the combination of record-keeping and independent review requirements for, among other matters, the calculation of the benchmark. If proper records were kept, and were discoverable in litigation, it would make it easier to figure out where any liability for rigging might lie. And this fact might discourage rigging. But although there’s not a whole lot of detailed substance to the principles there isn’t any less than you find in most transnational standards documents. The oddity is really in including the GFMA in this list as it’s not a national regulator, or an international organization in the same way that IOSCO and the Basel Committee are. It’s a private sector group. And given the failures in Libor etc seem to me mostly to have been failures of the private sector, including failures of governance at the BBA and in banks, that is a bit strange. On the other hand, given the recent focus on the culture of financial firms, the GFMA has a real incentive to be seen to care about standards.

the summer is over – financial regulation just gets more complex September 13, 2012

Posted by Bradley in : financial regulation , add a comment

More complex in terms of figuring out the costs of failures of financial regulation. Better Markets says the financial and economic crisis cost more than $12.8 trillion in GDP loss and GDP loss avoided because of emergency spending and actions by the Federal Reserve Board. And there’s more:

Then there are the enormous unquantifiable costs from the economic wreckage Wall Street caused from one end of our country to the other. For example, unemployment, bankruptcies, foreclosures, and underwater homes have destroyed many neighborhoods and communities across the country, while decimating the tax base of cities, towns, counties, and states. Added to that are the demoralizing and gnawing invisible costs of anguish, anger, depression, and often humiliation from losing a job and failing to provide for a family; being forced to move out of a home, often to move in with relatives or friends, but sometimes to move into a car or homeless shelter; watching your children get sick with no ability to go to a doctor or pay for a prescription; signing up for food stamps and having your children get free school lunches that you can no longer afford; having to break it to your children, who have worked so hard in school, that college is no longer affordable and they have to get a job, any job, as soon as possible; or your spouse finding out that you aren’t retired but working at a low paying, often minimum wage, job because you need the money. This list sadly goes on and on, including spouse, child, alcohol, and, too often, drug abuse.

More complex in terms of the development of transnational financial regulation. The EU Commission published proposals for the European Banking Union: a proposed regulation giving regulatory powers to the ECB, a proposed regulation amending the regulation establishing the European Banking Authority, and a Communication setting out a roadmap. And the Bundesverfassungsgericht is allowing Germany to ratify the ESM Treaty, subject to limitations with respect to the amount of the German contribution and requirements for the German Parliament to be informed.

And more complex in terms of assigning blame and sanctions. The FSA made an example of Peter Cummings, formerly of HBOS, fining him half a million pounds and banning him from holding any senior position in a UK bank, building society, investment or insurance firm “on the grounds that he lacks competence and capability” to act in such a role. The 92 page final notice notes a number of other factors in HBOS’ problems which it says mitigated the sanction imposed, including Mr Cummings’ giving up of a bonus. But the FSA says he should have improved controls, and notes a number of issues with the culture at the bank, including a “culture of optimism” and the fact that staff were encouraged “to focus on revenue rather than risk.” A full report into HBOS is to come out in due course (the notice says that work on the report had to follow enforcement proceedings, suggesting that no-one else at HBOS will be sanctioned). Mr Cummings criticizes the FSA for taking action against him alone at HBOS, saying the action “is tokenism at its most sinister.” Nils Pratley asks why the other directors are “off the hook.”

libor: commission consultation September 5, 2012

Posted by Bradley in : consultation, financial regulation , add a comment

The Commission has published a consultation document on the regulation of “indices”, with comments due by November 15th. The “target group” for the consultation is “[c]ontributors to, providers of and users of indices and benchmarks.” The document suggests that recent proposed changes to the market manipulation regime may not be sufficient to address the problems the libor/euribor scandal identified:

changing the sanctioning regime alone may not be sufficient to improve the way in which benchmarks are produced and used. Sanctioning does not remove the risks of manipulation arising from the inherent conflicts of interest linked to the production and governance of benchmarks in their current form. This consultation seeks to assess how to improve the production and governance of benchmarks. Benchmarks should accurately reflect the economic realities that they are intended to measure and should be used appropriately.

how not to reshuffle your cabinet September 4, 2012

Posted by Bradley in : life , add a comment

Juliette Jowit and John Burn-Murdoch at the Guardian say:

The Conservatives’ first full reshuffle has left the cabinet slightly more male, more Oxbridge, with fewer people from ethnic minorities and with a more pronounced southern bias.

It’s not as if it wasn’t very male, Oxbridge and southern before – now it’s just more so.

culture and firm risk-taking August 29, 2012

Posted by Bradley in : risk , add a comment

Roxana Mihet has authored a recent IMF working paper with the title Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis. Here’s the abstract:

This paper investigates the effects of national culture on firm risk-taking, using a comprehensive dataset covering 50,000 firms in 400 industries in 51 countries. Risk-taking is found to be higher for domestic firms in countries with low uncertainty aversion, low tolerance for hierarchical relationships, and high individualism. Domestic firms in such countries tend to take substantially more risk in industries which are more informationally opaque (e.g. finance, mining, IT). Risk-taking by foreign firms is best explained by the cultural norms of their country of origin. These cultural norms do not proxy for legal constraints, insurance safety nets, or economic development.

eu banking regulation August 28, 2012

Posted by Bradley in : consultation, transparency , add a comment

As the Commission is soon to publish proposals for a European Banking Union, I notice that more than a month after I noted that the web page for the Consultation by the High-level Expert Group on Reforming the structure of the EU banking sector did not display any comments (and wondered where there had in fact been any) there are still no comments posted to the web page, nor any publication of the results of the consultation. But there were comments, for example from the Financial Services Users Group, from Finance Watch, from the CBI, from AFME, from the Swedish Bankers Association, from the European Association of Co-operative Banks, from Deloitte, from the European Banking Federation…… AIMA says its response “is for AIMA members only” (I guess they have no interest in regulatory transparency).
On Saturday it will be three months since the consultation ended. Some of the responding organizations will have shared their comments with each other and with their members and friends. Meanwhile, citizens have to search to find what they have been saying.