Lord Turner, the head of the UK’s Financial Services Authority, is my new hero. He is willing to tell banks to do things that are in the public’s best interest but are singularly unpleasant and costly to the financiers. The fact that what is good for the banksters is increasingly at odds with what is desirable for the rest of us simply highlights how predatory the industry has become, and how the incumbents are pathologically unable to see that (I may be being charitable in taking their wounded-sounding protests at face value)
Last week, he stirred up a hornet’s nest by suggesting the unthinkable, namely, that the financial services industry needs to shrink. In reality, quite a few people have made that observation, but anyone in authority who dares say such a thing out loud must be beaten back.
Lord Turner is not deterred. Today he pressed forward by again provoking the industry with another sound idea that they are certain to fight tooth and nail, namely, to restructure themselves and develop plans in the event they fail. This move is a necessary step in implementing a bankruptcy regime for financial services firm, which of course is something the firms do not want. The “No More Lehmans” doctrine has put banks in the catbird seat, deemed to important to be allowed to fail, yet managing to evade the sort of controls that would be appropriate given their utility status.
The reason for the howls of protest, however, is more immediate: financial firms often have complex structures either to minimize taxes or circumvent regulations. So they would not only face the cost of restructuring, but higher ongoing expenses. How horrid. Those banks have an absolute right to their profits, or at least that’s what they expect us to believe.
Even if Turner is catching a lot of flack, he is at least willing to stare down the industry. The financial services sector is even more important to England than to the US, but they also have been longer at the empire and banking game than we have, and as a result, at least some recognize the importance of having sound institutional structures. We have completely lost the plot in the US. While Timothy Geithner is giving lip service to having banks draw up resolution plans, every measure the Treasury has proposed had either been bank-friendly from the get-go, mere posturing, or half hearted and easily beaten back. The Turner discussion of the need to simplify legal structures reveals what a serious version of wind-down plan would need to include, and it is a virtual certainty nothing of the sort will be required in the US.
From the Financial Times:
Lord Turner backed international moves to force the big, systemically important banks to draw up “living wills”, wind-down plans in the event they fail.
But the chairman of the Financial Services Authority said this drive would also have the benefit of unravelling banks’ structural complexity used to minimise tax….
Lawyers predicted that banks would resist fiercely any wholesale restructuring that could cost them hundreds of millions of dollars. They also warned that any such moves would be extremely hard to implement.
Louise Higginbottom, head of tax at Norton Rose, the law firm, said: “Many banks operate through a complex series of subsidiaries and branches. It’s taken years for these structures to evolve and killing them off at a stroke would be difficult.”