Building on yesterday’s chat about London versus Europe, there’s more to this than initially meets the eye, as it’s also Europe versus Banks.
That’s the real thing here, and it’s a political agenda rather than a market based one.
The politicians are all conscious of their short tenure in their parliamentary seats and want to reach out to their voters by showing a strong political stance against the banking system.
Knowing that their supporters are driven by the media to believe that all bankers are greedy, arrogant pigs, they do not care too much if they flagellate the industry publicly.
This certainly seems to be the position the Eurocrats take, and it’s why the UK has the problem but, as mentioned, so do the banks.
Take the conversations I was having yesterday about leverage ratios, liquidity ratios, stable funding ratios, Basel III, capital reserves and such like.
On the one hand the banks are unable to leverage and yet, on the other, they must create and keep more capital in reserve.
How do you create more capital without the ability to leverage?
Or take liquidity ratios. Are these in real-time, based upon valuation, on or off balance sheet and so forth.
It sounds like a nightmare.
Similarity we have this nightmare between of collateral management discussed in depth last year in the Clearing & Settlement Working Group who could see that EMIR’s trade reporting and repositories would see firm’s scrambling to move collateral on and off their exchange trading platforms in real-time. It’s not easy but it’s the only way to make it work.
Finally, there is that tension in the retail world between lend more and be more risk averse. Don’t lend stupidly but please lend to anyone who asks, seems to be the political requirement.
None of it stacks up of course, so the banks and folks do their best to keep up and often fail.
I guess the core statement that stuck with me during this dialogue is the challenge of data quality.
One treasurer said to me that they have so many divisions to deal with in their company, all of whom have leverage and liquidity activities that impact the ratios, and they just cannot keep up with ti all without fantastic data analytics.
This will lead to extremes, as the bank that has great data quality will be able to sweat their assets far better than the ones who don’t.
As my colleague said to me, “the bank that does not have a great handle on their enterprise data is a little like the bank that is driving on a muddy road without windscreen wipers”.
Yep. They are far more likely to crash.