“Project Merlin” keeps on giving

Well, it was obvious that this bullet point from the Merlin agreement:

implementing and applying European and international rules to create a level playing field in both policy and practice whilst protecting and maintaining the particular strength of UK financial services, and without pre-judging the outcome of the Independent Commission on Banking (IBC).

was a strong signal that the UK’s Treasury wasn’t going to back our bank regulators’ tough line. Some confirming evidence comes today as the Chancellor sounds the retreat on the UK’s untypically stiff liquidity regime:

George Osborne is looking at ways in which Britain’s tough bank liquidity rules might be eased, potentially saving banks hundreds of millions of pounds and releasing funds for lending to businesses and homeowners.

The chancellor is said to be looking sympathetically at claims by the banks that Britain’s regulators have gone too far in their efforts to avoid another Lehman Brothers-style crisis and have put the City at an international disadvantage.

That sounds like a done deal, from the Chancellor’s side. From the banks’ point of view the hoped for quid-pro-quo (more SME and homeowner lending) is completely optional. They have already made a very undemanding, or completely empty commitment to lending to SMEs, in the Merlin agreement, so I don’t see why they should now feel particularly compelled to offer more.

This ‘negotiation’ between banks and government is pure black comedy; or just kabuki, if you can stand the confusion of genres.

UPDATE: Oh dear, Barclays don’t seem to think the bonus-capping part of the agreement is worth complying with either.

Print Friendly, PDF & Email


  1. Richard

    Just like the the fight over tougher capital requirements, the fight over liquidity is a battle that regulators were doomed to fail from the start. It was always subject to the “level playing field” argument.

    When it comes right down to it, there is only one area that regulators can successfully battle the banking industry on. That area is disclosure.

    Disclosure does not impact a bank’s ability to make loans.

    With disclosure, the level playing field argument is reduced to “we want to take risk”. It is the regulators job to say no to risk.

  2. Doc Holiday

    We’ve had full disclosure since before Enron and we’ve also had a lack of regulation enforcement — so bottom line, don’t invest in businesses on wall street! Take your money and invest it in a local business or buy things that have real value — or better yet, don’t even play the game of value, just try to live the best life you can and protect what you can; invest in yourself!

    Why not strive to be happy and find creative things to do and get pleasure out of the moment doing good things? Why wait for some conartist shitbag banker to make your life meaningful…. change the way you live and screw the banking system and all the consumer bullshit!

    1. Richard

      Sorry Doc, but we have not had full disclosure.

      In the case of structured finance and banks, full disclosure would be current asset-level data.

      Most investors could have figure out to avoid the worst of the sub-prime mess if they had access to the current asset-level data and could see how much different it was than the deal representations.

      The inter-bank lending market would not have frozen if banks had been able to see the exposure to toxic securities that the bank they were lending to had.

      In both cases, market discipline would have set in far before the problem got out of hand.

    1. Richard Smith Post author

      Yes, something of a barrage of standard bank talking points today.

      How are you Doc, anyway? Good to see you around again.

      1. Doc Holiday


        I’m trying to get back in shape with blogging, but oh baby, what a pain — I feel the need to invent strong new swear words and find disgusting ugly metaphors. I don’t seem to have time to do this (here, or anywhere) yet it seems to be important to stay in contact with current events and to keep focused on the reality as to why we are all in this mess (everyone besides the shitbag bankers). I’m probably like many others, still looking for a glimmer of accountability — and wondering why Obama traded his (and her) soul in for a stunningly tight fitting Darth Vader uniform — but I guess he/she has a burning desire to wear fashionable nazi-like outfits (?).

        In some ways it’s really good to be spending time looking at some of this crap, but I seriously have my doubts as to the validity of this social (internet) experiment, where one taps in a bunch of words that are fed into some great void and then there is some result. I imagine some fool said that same thing when Gutenburg was screwing around with movable type. I guess one can only ask so much from oil-based inks and inorganic pixels. Maybe it’s not so much the medium as it is the clarity of the messages?

        Oh crap, now I can’t stop — thanks a lot for saying hello…

        See: The Banquets were private political meetings which were a way to turn around the 1835 Act prohibiting public assemblies. The first session was in Paris on 9 July 1847, and progressively spread to all of the French provinces. The prohibition of one of these meetings by François Guizot’s cabinet, supposed to take place on 14 January 1848 in the XIIth arrondissement of Paris, and then of another one set up for 22 February 1848, were the immediate cause of the riots which led to Louis-Philippe’s destitution.

        Also see and feel: Russia’s relative stability was attributed to the revolutionary groups’ inability to communicate with each other.

        And why not toss this in? Fleetwood Mac – Go Insane – The Dance -1997

        Nice to see you too!

  3. William Greene

    I will post what I posted on the blog.

    A couple of flaws with the calculation:

    1) BarCap and many other businesses within Barclays are dominated by non-UK employees. The Merlin agreement only applies to UK-based staff.

    2) “Compensation costs represented 43% of income (2009: 33%)” refers to total income, not net income for BarCap. This is clearly defined in the glossery.

    A better way to look at it would be to compare the change in the average comp for BarCap employees which is an increase of 6%.

    3) I think your view on deferrals is incorrect. Deferrals for prior years service are not included in Merlin. It is deferrals to future years which is included. For example, if you were paid £100 in 2009 with £30 deferred to 2010 and £70 taken immediately, a full £100 would be included in the 2009 review. On the other hand, if you were paid £60 in 2010 with £40 immediately and £20 deferred to 2011, then you would take in £40 (for 2010 work) and £30 (for 2009 work). However, for the 2010 review, you would include only the portion paid for 2010 work regardless of when it is recieved – that is, you would count the £60 paid but not necessarily recieved, and NOT the £70 recieved in 2010.

    I agree in principle with your comments but the facts are not quite so clear cut.

  4. George999x

    Does the agreement require each individual bank to pay less, or just the big four together, as a whole, to pay less (so if Barclays has increased pay, others will have to reduce even more?)

Comments are closed.