A good discussion yesterday about government’s powers to influence banks and control their behaviours.
The conversation went something along the lines of the following.
Governments are working hard to create unified systems across borders for commerce.
An example is SEPA and the PSD, MiFID and the Lisbon Agenda of the European Commission.
This is something I’m continually blogging about as the idea of creating banking without borders is the vision of an Economic & Monetary Union (EMU).
We have been working towards this vision for almost two decades, although there are still challenges.
For example, when the Italian Bank Unicredito acquired the German bank HVB, it caused issues in Poland as the Polish were happy having half their branches being controlled by Germans but by Italians? Nein.
In other words, banking without borders is fine as long as the bank within the borders meets with the government’s approval.
This is where it gets interesting, as allowing free and open bank competition is difficult if it means that a government gives away its’ economic controls to a non-state approved institution.
Imagine if Deutsche Bank were acquired by Santander for example.
Impossible I know … or is it?
Would the Germans enjoy having their largest institution being run by the Spanish?
Or how would the media play out if BNP Paribas tried to take control of Lloyds Banking Group.
Sacre Bleu, le francais controllez les anglais?
Je ne pense pas.
Whatever … these things may happen and play out but governments, and the people, are far more at ease if a nation’s banks are controlled by the nation or by a nation state’s friend.
A British bank being run by an American institution is probably acceptable.
A Belgium bank by the French is ok.
A Ukrainian bank by an Austrian is allowable.
But there are so many cracks and fine lines where such cross-border operations are tense that it proves unviable for most banks to expand outside a nation’s borders without cultural and legal barriers occurring.
Much of this is because, as demonstrated by this economic crisis, the banking system is so core to a nation’s economy that its control must be in the hands of the nation’s government.
But another part is just as core, which is the language and culture of the bank itself.
It’s been interesting, for example, to see the rise of Santander in the UK.
The cultural and national barriers have not been in evidence, in terms of domestic resistance to the banks expansion. But the non-national approach to platforms, processes, structures and operations have been in evidence, as regularly cited by media and protagonists.
So where does this take us?
It us to point that a unified banking marketplace without borders will never be achieved by governments or governmental policy.
The words of governments may encourage such harmonisation, but their actions discourage it.
Governments want control of the banking system within the governments’ control.
They don’t want non-national policies being instrumental in national economics and commerce.
For this reason, a unified European banking marketplace is highly unlikely as member states resist the erosion of their national controls.
This is easily evidenced by the Giovannini barriers when we discuss clearing and settlement, where collateralisation and corporate actions show that the easy process of trading and dealing with post-trade settlement is never going to be an easy area.
However, if this is the case.
If this is true.
If governments cannot create unified markets due to their own national interests.
Then what happens if banks want to create unification?
Governments would be powerless.
This point has been more and more in evidence over the past two years than any other.
Banks are in control.
The lengthy discussion of bonuses, taxation, levies and duties on banks across the G20 has only shown one fact and one unalterable truth: banks are in control of the agenda.
If nations mess with nation’s banks, then nation’s banks will move.
If banks mess with national economies, then national economies collapse.
So, the core argument must be that the banks are united and not divided, whilst nations are divided and not united.
Until such a situation changes, the legislative agenda will always be weak.