DCSIMG

Comment: Regulators appear to have learned from 2008

Martin Flanagan

Martin Flanagan

  • by MARTIN FLANAGAN
 

THE cross-border British/US plan for rescuing any collapsing “globally significant banks” looks on the money, as the Americans say.

Shareholders must be prepared to lose all, bondholders a lot, and taxpayers will probably stay off the hook. Result.

At the heart of the changes is that one national regulator would be responsible for overseeing the insolvency of a big international bank instead of regulators from different countries dealing with foreign subsidiaries.

This would be a major improvement on 2008, when a patchwork of regulators dealt with overseas subsidiaries. It undoubtedly complicated regulatory matters. The dual strategy paper by the Bank of England and the US Federal Deposit Insurance Corporation wants to beef up capital at the top of international banks, de-layer the regulatory “resolution” template for banks winding down, and unashamedly transfer the risk to equity investors and unsecured bank lenders and away from taxpayers.

They have clearly learned from failures like Northern Rock and Wachovia, and bail-out-prevented collapses such as Royal Bank of Scotland, Citigroup and UBS.

Can bunga-bunga really be on the way back?

THE country is debt-ravaged, its working practices ossified. The political system is a patchwork of brittle alliances, and there is barely-disguised disdain from the “rich” north of the country for the rustic south. It has a black economy that is not positively Greek, but certainly knows how to fiddle while Rome burns.

So what a time for Italians, the eurozone’s third-biggest economy and therefore a key to restoring Europe’s flaky financial stability, to even consider bringing back the prime ministerial joke that was Silvio Berlusconi.

Battle-hardened financial markets are nervy that Italy – just possibly – might re-elect “bunga-bunga” Berlusconi for a fourth time in a general election early next year triggered by premier Mario Monti announcing he is to step down.

That decision followed Berlusconi’s People of Freedom Party withdrawing its support from the unelected technocrat Monti administration. No wonder financial markets are worried. Monti was dealt a weak political hand that he has played with some dexterity in trying to return Italy to financial health and political and industrial realism.

It has not been an unmitigated success, with Germany’s Angela Merkel seeming determined to tie one hand behind her Italian counterpart’s back.

But his administration has twice the credibility of his risible predecessor’s. If Italy votes Berlusconi back in it will be seen by the international community as unmitigated back-sliding, bad not just for the country but the tottering eurozone itself.

 

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