More Regulations Not Just Needed but Essential, Says Senior Commercial Banker
“Are greater regulations needed? Yes, they are essential,” said a vice chairman from the commercial banking division of a large UK bank. He did not believe, however, that another US Glass-Steagall Act of 1933, which built walls between the investment and commercial banking divisions, was the solution.
The vice chairman, a guest speaker at the Financial Services Club, proposed that potentially what was needed was “more legislation instead of regulation”. He said that although the Americans thought that risk regulation, embodied in Basel II, didn’t do the job, many Europeans would say that it was ahead of the game. “Basel II was on the case but not pushed forward fast enough,” he said.
The meeting, held under Chatham House Rule, explored how the crisis has changed the bank-to-corporate relationship. The speaker pointed out that many corporates believe that the banks have exited the business of lending money, whether that lending was to each other, to businesses or consumers. “Lending depends on liquidity and confidence – and the market is lacking both. We have seen a recent shift back to banks as primary lenders: in 4Q2006 only 47% used the banks as primary lenders; in 3Q2008 that rose to 67%,” he said. “One question posed by the crisis is: is there less trade because there is no trade finance or because no one is buying the goods?”
With the globalisation process halted in its tracks, another question is will it be reversed with protectionist measures again developing in regions or blocs? The speaker believed that there will be a temporary reversal – or a short-term trend towards protectionism – but then the national markets will open up again. He wouldn’t hazard a guess as to when that would be, but said how “upbeat” he felt when he was in the Asia region where business is moving forward with a degree of optimism.