Bob Diamond appeared before the Treasury Select Committee of the British Parliament today. While some MPs had more than a reasonable banking knowledge and asked some good questions, both sides came up short. Here is why along with some general observations.
Where MPs Came Up Short
MPs still suffer from derivatives derangement syndrome and a total misunderstanding of investment banking. Diamond had to remind MP Pat McFadden that Halifax, HBOS, Alliance & Leicester and Northern Rock all collapsed and they had nothing to do with derivatives and the riskiness of investment banking.
Following on from the above, it appears that MPs, along with the rest of the population do not realize that loans involve risk taking and that losses do not only come from derivatives or “casino” banking—a most unbelievable notion. Until MPs and regulators fully understand the dimensions of risk they should forego any decision to change the structure of the industry. Continue reading
Posted in Banking, Business, Politics
Tagged Bank of England, Banks, Barclays, bob diamond, british parliament, Business, deerivatives, economy, Financial Crisis, Government, Libor, libor rates, MPs, politics, Risk, Treasury, treasury select committee
We can never legislate or regulate our way to sustainable banking—the industry needs to adopt a new strategic business model
Déjà vu All Over Again
“They came on in the same old way and we sent then back in the same old way”.
They were the words the Duke of Wellington used to describe the repeated and futile attempts by Napoleon’s Grand Armée to break through the British defenses at Waterloo.
They can equally be used to describe the current prescriptions for the subprime crisis.
We remain mired in the unenviable position where those who know about banking are firmly wedded to the same old solutions, while those who don’t know about banking i.e. some in the mass media and certain politicians, resort to populist rhetoric. Sadly, the debate on the subprime crisis has generated more heat than light.
It is time for something different. However, before we move forward with a new prescription we need to better define the problem.
Posted in Banking
Tagged Audit, Bank of England, banking, Clearing The Bull, Credit, Dick Fuld, Federal Reserve, Finance, Financial Crisis, Fred Goodwin, FSA, Investment Banking, Junk Bonds, LDC Debt, Legislation, Regulations, Risk, Risk Management, SEC, SOX, Subprime