Receiving Wide Coverage ...
The Vickers Report: We missed this yesterday, but it's still well worth bringing to your attention, if only to put the regulatory debate in this country into perspective: the U.K. Independent Commission on Banking, led by Sir John Vickers, issued a 358-page report recommending an overhaul of the country's banking system. Central to its blueprint is the "ring-fencing" of retail banking operations — isolating them from a corporate parent's wholesale and investment banking activities. The ring-fenced portion of a bank would have its own board separate from the rest of the institution, and a rather plush 20% capital cushion (including 10% equity, plus other loss-absorbing investments like unsecured "bail-in" bonds or contingent capital), among other protections. Capital could move from the ring-fenced bank to the investment bank — as long as the latter's capital ratio did not fall below the 10% minimum. This "structural separation should make it easier and less costly to resolve banks that get into trouble," the report says. Reuters' blogger Felix Salmon admiringly calls this plan "the Volcker rule on steroids … It's essentially a break-up, in all but name, of the big banks with both retail arms and investment-banking operations." (In light of this, Salmon finds JPMorgan Chase CEO Jamie Dimon's recent complaints about Basel III galling). Chris Skinner of the Financial Services Club blog is less impressed: "The proposal to leave banks as integrated universal operators — good for Barclays — by purely creating a delineation between their domestic commercial and retail banking operations versus their global links is a duck out. Why? Because it does not address the issue of why banks fail, but just what to do when they fail. … Sure, it's a good thing to know what to do when a bank fails ... but why not try to deal with the core of failure as, even if we know what to do, a bank failure in its investment arm will still destroy value in its overall operations?" The Journal's "Heard on the Street," while awed by the scope of the proposed reforms, calls the plan "a major gamble" on various unknowns, such as the market's willingness to float bail-in debt and shareholders' willingness to accept lower returns on equity from banks. Finally, the FT's editorial page declares the Vickers plan "a necessary reform of British banking" that would effectively tackle the problem of too-big-to-fail. The editorial writers do warn that regulatory arbitrage could, in the long run, undermine the reform: "the big European governments are … unlikely to abandon their universal banks. That means the Vickers plan does not have time on its side. For now, the single market in retail banking works better in theory than in practice but, sooner or later, European banks will try to poach UK retail business and weaken the effect of Vickers rules that apply only to UK banks." Still, "that is a case for implementing them while they do the most good" — i.e. tout suite. Wall Street Journal, New York Times, Financial Times, BBS News
Europe, Abyss in Staring Contest: As the markets dropped Monday, "the crisis was fast evolving from one that centered on the debts of profligate nations into one pivoting around the big banks that hold large amounts of those debts on their balance sheets," according to the Post. The conversation about Greece has gone "from how best to avoid a Greek default to how best to contain the fallout if and when it happens." U.S. banks have much at stake in this drama; though they "hold relatively little Greek debt," the Post says, "their exposure to the debt of larger economies in Europe, including Italy and Spain, is significantly higher, and their close business relationships with European banks mean the woes in Europe could easily spread across the Atlantic." In the Times' "Dealbook," editor Andrew Ross Sorkin (who also authored the bestselling crisis potboiler "Too Big to Fail") compares our country's management of its financial sector favorably to Europe's: "We often blame United States politicians and regulators for not owning up to our economic problems until it is too late. But the Europeans have tried to keep up the fiction of their economic strength for much longer. … While the United States was injecting capital in banks, guaranteeing debt and trying to increase capital requirements, European regulators were fighting behind the scenes to keep capital requirements low." Sorkin takes to task Christine Lagarde, the International Monetary Fund chief, for backtracking on an internal IMF document leaked over the weekend that found European banks woefully short on capital — and he enumerates other examples where she's "changed her tune" about the degree of risk to European banks. Wall Street Journal, New York Times, Washington Post
The New BAC: CEO Brian Moynihan finally unveiled his plan to revitalize Bank of America Monday. The company intends to cut $5 billion of annual costs by the end of 2013 and eliminate 30,000 jobs. The Times' Dealbook tells the behind-the-scenes story of the consultants who helped B of A decide where to trim. Although they come from two different consulting firms, the leaders of the two teams on the project both worked together on a similar endeavor back in the 1990s for a B of A predecessor bank, Fleet Financial Group — where Moynihan was an up-and-coming lawyer. Wall Street Journal, New York Times, Washington Post, Financial Times
Wall Street Journal
Foreign banks with small operations in the U.S. are lobbying for an exemption from the Dodd-Frank Act's "living will" requirement. The FDIC is expected to finalize proposed rules for living wills at a board meeting Tuesday. A comment posted by a Journal reader offers an interesting explanation for banks' reluctance to write these instructions for unraveling themselves: "Not providing this sort of information is critical if one is to maintain the facade. Imagine if people had to do this: 'I bequeath the lease on my Mercedes to my brother, while I allow my sister first rights on my apartment rental. Though my bank accounts don't have anything in them, I wish for all of my purses to be passed on to my best friends.' "
At the same conference where Moynihan was speaking, Wells Fargo's chief financial officer, Timothy Sloan, reassured investors that his bank has observed no "big pullback" in loan demand, despite the limp economy.
And Lastly ...
Business Insider: After a summer internship at JPMorgan in London, Xenia Tchoumitcheva has reportedly turned down a full-time job offer from the bank. Why? According to Business Insider's translation of this German news story, Tchoumitcheva declined because the bank "would have urged her to focus just on one job"; the Swiss native has multiple career interests, including modeling and DJ-ing, and has said she wants to "build my own enterprise." We'd have guessed that the runner-up for the 2006 Miss Switzerland pageant spurned JPMorgan because she was offended by Dimon's comments about Basel. (Note: this is one story where we highly recommend you avoid the online comments; suffice to say they add nothing to the conservation.)