Guest Contributor: Gary Wright, MCSI, CEO, B.I.S.S. Research
The Banks are still proving a major stumbling block to the world recovering from the 2008 financial crisis. The term ‘too big to fail’ has entered the English language and Governments and Regulators have floundered around trying to come up with a solution that encourages the banks to increase lending but at the same time curtails any chance of the tax payers, once again picking up the check when they fail.
Since 2008 the world’s economic crisis has emerged with sovereign debt as the main worry but the two problems are linked. Without the Banks lending in substantial numbers any chance of sovereign debt issues being resolved are zero.
The world is in the most serious financial condition that it’s ever been in and dramatic solutions must be taken. The USA, Europe and Asia (especially China) have to unite in finding a unified approach. There is no point in any country or region trying to benefit at the expense of another. And providing a banking regulatory framework must be top of the agenda.
In the UK, the coalition Government is considering ring-fencing the risk activities in Investment banks from those of its retail activities. This is a big move and in the USA would look like the reinstallation of the Glass-Steagall Act. However, the timing is being questioned; implement now or later? Would implementation now threaten the fragile growth in the economy and risk it slipping back into recession? Would ring fencing push banks to consider moves to other countries with less regulation? These threats are what I mean about the need for a global and unified response to ensure there are no safe havens that banks can move to, to sidestep any new regulations.
If banks were forced to ring-fence their risk activities what would be the effect on their risk rating? Would it be improved and thus improve their borrowing potential and therefore be able to release more for lending, which would be positive for the economy?
The Wall Street Crash brought about massive changes in banking that caused banks to be segregated, today; we are in the same position. Do we have Governments strong enough to make tough decisions? Do we live in a world where these decisions can be implemented worldwide?
But there is more at stake than just the Banks, with the world’s economy on the table.
Banks too big to fail? No, they’re not!