- ICB, Issues Paper – Call for Evidence (September 2010).
- J Vickers, “How to Regulate the Capital and Corporate Struc tures of Banks”, London Business School and University of Chicago Booth School of Business Conference, “Regulating Financial Intermediaries – Challenges and Constraints“, All Souls College, University of Oxford, January 2011.
- ICB Interim Report, para 2.91.
- The original Terms of Reference are available at http://bank-ingcommission.independent.gov.uk/bankingcommission/news-and-publications/.
- Paras 1.4 and 1.5.
- Paras 1.6 and 1.7.
- LBG had acquired a dominant 30% share of the UK current account market with the disposal being required under the EU Project Verde.
- Barclays rose to 307.46p, RBS 44.43p and LBG 32.71p. HSBC fell by 0.5% to 661.36p. “UK Banking: Qualified Welcome for Report”, Financial Times 11 April 2011.
- LBG Chief Executive Antonio Horta-Osorio argued that any extension of Project Verde would not be in the interests of customers with the recommendation being based on limited evidence and potentially delaying the entry of any new com petitor into the market. “Lloyds Lashes out at Vickers Report”, Financial Times 11 April 2011.
- Paras 2.10–13.
- Paras 2.14–16.
- Haldane compares the difference in rating agency yields on an external support and stand-alone basis with Oxera quan tifying the cost of buying up total assets and settling all debts in the event of a systemic banking crisis. A Haldane, “The US$100bn Question”, www.bankofengland.co.uk/publications/speeches/2010/speech433.pdf; and Oxera, “Assessing State Support to the UK Banking Sector” (2011), www.oxera.com/main.aspx?id=9454.
- Annex 3, paras 4–9 and Box A.
- The Basel Committee on Banking Supervision calculated a 19–163% of annual GDP net present value (NPV) cost of a financial crisis with major crises occurring every 20 years (4.5%). A 3% GDP annual insurance premium would then reduce the probability of crisis to almost zero and a 1.5% premium reducing this probability by half. Annex 3, para 3. Basel Committee on Banking Supervision, “An Assessment of the Long-Term Economic Impact of Stronger Capital and Liquidity Requirements” (2010), www.bis.org/bupl/bcbs173.pdf.
- Para 2.22.
- Paras 2.26–35.
- Para 2.24 and Annex 2.
- Paras 2.36–37.
- Para 2.51 and Annex 4.
- Para 2.51, citing S Heffernan and X Fu, “The Structure of Retail Markets: What Do We Learn from Bank-specific Rates?” (2009) 19 Applied Financial Economics 1885; and C Gondat-Larralde and E Nier, “Switching Costs in the Market for Personal Current Accounts: Some Evidence for the United Kingdom” (2006), Bank of England Working Paper, www.bankofengland.co.uk/publications/workingpapers/wp292.pdf.
- Paras 2.53–86.
- Paras 2.87–88.
- Para 2.92.
- Para 2.92.
- Para 2.93.
- Paras 2.95–96.
- Chapter 3.
- Paras 3.33–34.
- Paras 3.36–40.
- Paras 4.170–174.
- Paras 4.6–13.
- Paras 4.14–20.
- The higher estimates are rejected on the basis that the Report accepts that the effect of more equity on GDP is highly uncer tain, the relationship between capital and the risk of financial crisis is also uncertain and any increase in bank capital could increase or reduce the riskiness of bank lending. A 7% ratio is also rejected on the basis that the estimates assume a low esti mated cost of the crisis damage, and ignore the effects on bank debt yields and wider non-GDP crisis effects. Paras 4.30–31.
- Para 4.34.
- The work of the FSB is referred to in listing global SIFIs and examining possible indicators of systemic importance and cali bration methodologies. The Report refers to the work carried out by the Swiss authorities although it is expected that they may impose a 19% capital requirement. Para 4.36.
- Para 4.35.
- Para 4.37.
- Para 4.38.
- Paras 4.41–42.
- Paras 4.43–46.
- Paras 4.47–48.
- Para 4.49.
- Paras 4.49–53 and Annex 7 Fig A7.1.
- Para 4.59.
- The European Commission, “Consultation on Technical Details of a Possible European Crisis Management Framework” (2011), http://ec.europa.eu/internal_market/consultations/2011/crisis_management_en.htm.
- J Fiechter, I Otker-Robe, A Ilyima, M Hsu, A Santos and J Surti, “Subsidiaries or Branches: Does One Size Fit All?” (2011), IMF Staff Discussion Note, www.imf.org/external/pubs/ft/sdn/2011/sdn1104.pdf.
- Paras 4.65 and 4.68.
- GA Walker, International Banking Regulation Law, Policy and Prac tice (London, Kluwer Law, 2001), ch 3.
- A Barclays Capital study indicated that the probabilities of default among the largest 100 financial institutions between 1988 and 2009 were 1.2% for universal banks, 1.5% for retail and commercial banks, and 2.6% for investment banks. Barclays Capital, “UK Banks: Break-Up or Shake-Up?” (January 2011), interim report, para 4.64.
- For a literature review which suggests that multiple functions generated increased systemic risk, see M Richardson, RC Smith and I Walter, “Large Banks and the Volcker Rule”, in V Acharya, FT Cooley, M Richardson and I Walter (eds), Regu lating Wall Street (Hoboken, NJ, Wiley, 2011). Systemic indicator “tail betas” are higher for diversified firms: O de Jonghe, “Back to the Basics in Banking? A Micro-analysis of Banking System Stability” (2010) 19(3) Journal of Financial Intermediation 387. Revenue stream diversification between different financial activities increases the correlation between bank and market performance: L Baele, O de Jonghe and RV Vennet, “Does the Stock Market Value Bank Diversification?” (2007) 31 Journal of Banking & Finance 1999. Network theory suggests that common activities can increase risks across systems: AJ Haldane and RM May, “Systemic Risk in Banking Ecosystems” (2011)
- Nature 351.
- A Standard & Poor's report suggested that investment banking was r iskier than retail banking. Standard & Poor's, “Industry Risk for Investment Banking Is Generally Higher than for Other Financial Institutions” (January 2011), www2.standardandpoors.com/spf/pdf/media/industryriskforinvestmentbankingis-generallyhigherthanforotherfinancialinstitutions.pdf. Another report found that non-interest income generated activities were linked with higher volatility which offset the gains from diversification: KJ Stiroh and A Rumble, “The Dark Side of Diversification: The Case of US Financial Holding Com panies” (2006) 30(8) Journal of Banking & Finance 2131. Interim Report, para 4.75 and nn 44 and 45.
- Additional protections were being considered for specific types of retail deposits in excess of current insured limits in the European Commission's proposed revisions for the Deposit Guarantee Directive available at http://ec.europa.eu/internal_mark/bank/docs/guarantee/20100712_proposal_en.pdf. Interim Report, paras 4.64–76.
- Para 4.77 and Chapter 2 and Annex 3.
- Paras 4.78–80.
- Para 4.81.
- Paras 4.82–101.
- Financial Stability Oversight Council (FSOC), “Study & Recommendations on Prohibitions on Proprietary Trading & Certain Relations with Hedge Funds and Private Equity Funds” (2011).
- The FSOC is considering rules to prohibit trade solicitation by banks, imposing hedging requirements, inventory risk limits and making non-client focus trading contracts unenforceable. FSOC (n).
- Paras 4.94–99.
- Paras 4.166–69.
- Paras 4.102–08.
- Paras 4.109–14.
- Paras 4.116–18.
- Paras 4.119–21.
- Paras 4.122–25.
- Paras 4.126–28.
- Paras 4.129–31.
- Para 4.134.
- Paras 4.136–38.
- Paras 4.139–59. Retail financial services contribute £30–36 bn of the UK total £54 bn in tax receipts (including employment taxes) in 2010. 300,000 people are employed in the wholesale financial sector with 700,000 in the retail sector and 400,000 supporting professional positions in the legal, accounting and consulting areas. The largest UK banks are only involved in around 14–16% of wholesale activities within the City of London.
- Para 4.159.
- Paras 4.160–69.
- Para 5.43.
- Paras 5.33–37.
- Paras 5.38–42.
- Paras 5.3–13.
- Para 5.14.
- Paras 5.15–18.
- Para 5.22.
- Paras 5.23–24.
- Paras 5.25–30.
- M Jacomb, “The Future of Banking: Is More Regulation Needed?”, Financial Times 10 April 2010.
- Supra n 84, col 7.
- “An Opening Shot at Bank Refor m”, Financial Times 11 April 2011.
- The imposition of much higher capital ratios had been sug gested by David Miles, member of the Bank of England's Monetary Policy Committee, in January 2011.
- “Osborne Welcomes Bank Reforms”, Financial Times 9–10 April 2011.
- See eg REA Farmer, “Don't Let Banks Gamble with Taxpayer Money”, Financial Times 21 April 2011.
- On macroprudential oversight, s 12 infra.
- “Lenders, Your Ears”, Financial Times 9–10 April 2011, 26.
- Coyle and Haskel refer to this in terms of “the instability of our banking monoculture” with “the scale of incumbents [creating] an almost insurmountable barrier to new entrants”. D Coyle and J Haskel, “Only Radical Action Can Break Bank Monopolies”, Financial Times 11 April 2011.
- Coyle and Haskel, Ibid.
- P Boone and S Johnson, “The Future of Banking: Is More Regulation Needed?”, Financial Times 10 April 2011.
- Supra n 94, col 3. Citigroup almost collapsed in 1982 through emerging market debt, during the late 1980s due to US com mercial real estate losses and 2008–09 through US residential real estate: see Boone and Johnson, supra n 94 col 5.
- Ibid.
- FSA, A Regulatory Response to the Global Banking Crisis (March 2009).
- Para 5.27.
- Para 5.43.
- HM Treasury, Bank Levy: A Consultation (July 2010).
- Para 4.37, supra n 37.
- Supra n 95.
Law and Financial Markets Review
Volume 5, 2011 - Issue 3