Stephen Foley: Reform Bill will not end the uncertainty
Saturday 26 June 2010
US Outlook: Traders expected US bank shares to rise once Congress finalised its Wall Street reform Bill, since the uncertainty over the sector would at last be lifted, and they duly did yesterday. But the uncertainty about the sector has not really been lifted at all.
For starters, there is confusion over what effects spring from the flurry of last-minute compromises. Yes, there is a "Volcker rule", sort of, but instead of banning proprietary trading and investments in hedge funds and private equity, it limits them to 3 per cent of a bank's capital. Yes, there is a requirement to push derivatives trading into a separately capitalised subsidiary, but there will be exemptions for standard derivatives used to hedge the risks banks take on when dealing with clients. Drawing a line between proprietary trading and client-centred business is not easy; the business of definition has been kicked down to regulators.
It is also not clear where the $20bn levy on the industry, sprung on us late on Thursday, will fall most harshly.
Meanwhile, although the Bill orders greater capital requirements for the industry, the real business of reducing risk falls to the Bank for International Settlements and its Basel III agreement, which is being watered down as we speak. Those rules will take months to finalise and years to introduce.
Wrangling over derivatives and the Volcker rule, which I have always regarded as "non-core" to the issue of too-big-to-fail and the credit crisis, have obscured the really big achievements of this reform Bill: a new consumer watchdog to counter predatory lending and protect underwriting standards, and "resolution authority" to wind down frighteningly interconnected financial firms.
The Republican Jeb Hensarling scoffed that "there are probably three unintended consequences on every page of this Bill" – and he is surely right. We have moved decisively in the right direction, but that is not the same thing as saying the future is clear.
- 1 Isis burns thousands of books and rare manuscripts from Mosul's libraries
- 2 Scarlett Johansson new band 'already hit with legal complaint' from another The Singles
- 3 Husband and wife die holding hands within hours of each other after 67 years of marriage
- 5 'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Isis burns thousands of books and rare manuscripts from Mosul's libraries
Husband and wife die holding hands within hours of each other after 67 years of marriage
Mohammed Emwazi: Nine things we know about Isis militant 'Jihadi John'
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
'Jihadi John': Mohammed Emwazi – from British computer programmer to Isis executioner
Oscars 2015: Birdman beats Boyhood as Eddie Redmayne and Patricia Arquette win big - as it happened
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
This is what it's like to be dead, according to a guy who died for a bit
iJobs Money & Business
£30,000: Beverley James: A fantastic opportunity has arisen for a person looki...
£26,000: Beverley James: A fantastic opportunity has arisen for a person looki...
£21,500: Anna Woodward: The Accounts Payable team for this group is recruiting...
£45,000: Ann: My client is a FTSE 250 retailer based in Central London and the...