Monday, April 25, 2011

Ringfencing Investment Banks

Speaking of Sheila Bair, she recently floated the idea of forcing the big banks to ringfence their investment banking affiliates. This would primarily affect the universal banks, so as a practical matter we’re really talking about JPMorgan, BofA, and Citi.

Bair only has a couple months left on her term at the FDIC, so it’s understandable that she would want to put this idea out there before she leaves. She wants to ensure that the idea is at least in the mix, even though she knows it’s premature. Hence the very preliminary language she used — saying merely that she’d “like to get some public comment on the idea” of ringfencing.

Her point has been that we may need to make structural changes to the big banks if, after getting all the necessary information through the “resolution plan” process, the FDIC concludes that there’s simply no way to successfully resolve the big universal banks without structural changes. But we haven’t gone through the resolution plan process yet (the rules are still being written), so the FDIC doesn’t have nearly enough information yet to say definitively that structural changes need to be made, let alone what structural changes (e.g., ringfencing) are necessary to make them resolvable.*

Bair is essentially providing cover for her successor, should he/she end up deciding, after going through the resolution plan process, that something like ringfencing is necessary to make the big banks resolvable. By raising the possibility of ringfencing now, she’ll make it easier for her successor (rumored to be longtime Hill aide Martin Gruenberg) to propose ringfencing in the future without it coming as a huge shock and being dismissed out of hand. That’s probably a shrewd move. But I think that’s clearly all that Bair was trying to accomplish.

———————————

* I think the resolution plan process will ultimately force the big banks to make changes, but that the changes will be on an institution-by-institution basis. With the possible exception of JPMorgan and Bank of New York, I don’t think any real structural changes will need to be made, since the resolution authority can absolutely work on the dealers.

I know that Yves has a post claiming that the FDIC’s hypothetical Lehman resolution wouldn’t work, but her analysis is quite flawed. Among the myriad mistakes in the post, she and Satyajit Das both invoke scary-sounding cross-jurisdictional problems that simply wouldn’t arise under the resolution authority — since Lehman’s London broker-dealer (LBIE) was funded almost entirely by the holding company (LBHI), selling LBHI to Barclays under the resolution authority would have obviated the need for LBIE to file for bankruptcy in the UK. That’s, umm, kind of the point of the resolution authority.

14 comments:

Carter the Examiner said...

The problem to resolving a large financial firm isn't the investment banking activities. The broker\dealers are already handled under SIPC.

The problems are:
1. the payments and custody utilities (including the internalized payment flow)
2. The derivatives books, which must be hedged as they are gradually unwound (unless you want to pay away the value to the Street).

BobN said...

The drumbeat here of calls for more regulation is 180-degrees wrongheaded. The real answer is to end the FDIC and make banks compete for deposits on the basis of financial soundness. The self-discipline that this would spawn is all we need.

Investment Bank Energy said...

Hi,

The cost of the ringfence will be both significant and, understandably given likely timescales, not in forecasts. A loss of sovereign guarantee over the investment banking operations would trigger downgrades of at least two notches from credit rating agencies. Thanks a lot.

Buy Runescape Gold said...

The price of your ringfence is going to be the two substantial and also, naturally offered probably timescales, not inside forecasts. A loss involving sovereign assure over the expense consumer banking surgical procedures might result in downgrades of at least a couple of steps from credit rating businesses. Thanks a lot.

Buy Runescape Gold
RS Gold

price per head said...

very nice post I am really enjoyed visiting your blog thanks for sharing…

Anonymous said...

The money Cheapest Diablo 3 goldnecessary for your ringfence are going to be the two important as well as, naturally given probably timescales, not necessarily inside estimates. A loss of profits regarding sovereign assurance within the investment decision bank businesses might result in downgrades for at least two steps from credit rating firms. Many thanks.

sapık ahmet said...

Online german porn video pornhub hd watch.

murs dask said...

yemek tarifleri
ekol hoca
android market
twitter aç

Anonymous said...

It specializes in major disaster and the WOW PVP, PVE. You have specializes in those than you think to be much broader. It will make PVP and PVE have benefited from it. Otherwise, you will not be used in both cases 30 in any one WOW talent tree, which is the ultimate goal.

_________________________________
buy wow gold
rs gold

FIFA 13 coins said...

There are 151 real life nations that are smaller than WoW. And none of that guild wars 2 gold matters, because it's your World of Warcraft. As in the rest of your life, make of it what you will.

Cahaya Mandiri said...


It is amazing posting and incredible work, It has suitable information, I presently wanted to say that you have really so motivating and very informative post. Thanks for wonderful posting
tips cara agar cepat hamil l CARA BELAJAR BAHASA INGGRIS l the best acne treatment l how to lose weight fast easy
margahayuland l BELAJAR BISNIS ONLINE l tips cepat hamil l how to get rid of acne home remedies l
home remedies for acne l how to cure acne fast l
baju batik modern l toko sepatu online l grosir jam tangan online l
jual jam tangan l toko jam tangan murah peluang usaha online l is acne no more for you l how to get rid of acne naturally
how to clear acne l cure acne naturally
best natural remedies for acne l acne no more l tempat belajar bisnis online
peluang usaha rumahan l cara mendapatkan uang dari internet
makanan sehat agar cepat hamil l penyebab tidak bisa hamil lcara agar cepat hamil


The All-American Rejects said...

A good book may be Cheap Runescape Gold among the best of friends. It is the same today that it always was, and it will Buy Runescape Gold never change. It always receives us with the same kindness; amusing and instructing us in youth, and comforting Runescape Gold and consoling us in age.

The All-American Rejects said...

The past is sell guild wars 2 gold gone and static. Nothing we can do will guild wars 2 gold sale change it. Thefuture is before us and dynamic. Everything we do will affect it. The consequences of today are sale guild wars 2 gold determined by the actions of the past. To change your future, alter your decisions today.

PENNY STOCK INVESTMENTS said...

A nice sounding post very pleasing.