

Chained but untamed

The world’s banking industry faces massive upheaval as post-crisis reforms start to bite. They may make it only a little safer but much less profitable, says Jonathan Rosenthal

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Readers' comments



We are living in a global village,as to such i suggest a proposal for banking system that is " as the MNC's are investing in LDC's in their resources, the banks if for earning profits from their, they also invest in there countries natural resources as the main reason of usefull resources utilization is lack of money & corruption and for controlling bribery and loss of their investment also open branches in those countries by on line banking and conversly connection with their state banks too. Undeniably if such investment made by them are on profit basis not interest conditions put , as the interest system in the world is the main reason of global economy crisis. Then may be the crisis cope up.

Michael Dunne

This was a dumb idea: "Perhaps the biggest casualty of the crisis has been the idea that financial markets are inherently self-correcting and best left to their own devices."

There were a sufficient number of panics in the 19th and early 20th century to bring that assumption into question. Considering a leading proponent of that theory, a Mr. Greenspan, seem to engage in creating bubble conditions while also inexplicably intervening in the antics of a hedge fund, it seems not all folks stick to principles when situations get hot.

This is probably wise and well-deserved in light of the S&L crises, the culpability of the banks in various accounting scandals (thinking Enron's shennigans) around 2000, and the real estate imbroglio:
"After decades of deregulation in most rich countries, finance is entering a new age of reregulation."


A couple of points...the cause of the financial crisis was not a black swan. It was stupendously dishonest and unethical lending by rich people to poor people. HSBC's Household problem is a micro example of the macro problem. I say 'stupendous' because this has not been recognized in the UK at all. It has in the US, with the consumer protection bureau, however emasculated. My final point is to ask whether 'disintermediation' wasn't the biggest mistake in finance? Forget about Glass Steagall, Dodd Frank - go even further back to the fundamentals. I mean, once lenders lost sight of their borrowers, it was impossible to control quality. The other astonishing aspect of the crisis is the failure of the regulatory policies. This is a true political embarrassment. We should be looking at the shadow political system not just shadow banking system.

Tamim Nahar al-Refai

Banks will only be safe again once the issue of Global Banking is addressed with prudence. The origination of “bad” housing loans few years back escalated to dramatic levels because loan originators could easily place (securitize and sell) such loans globally; hence the problem of Irish banks for example. As the world gets smaller while its wealth gets larger, money flow becomes more turbulent than laminar. Transparent stops and controls are needed in all the right places to manage global risk.


I'm not sure that the whole premise of the article even holds true. The introductory text says "[the reforms] may make it only a little safer but much less profitable". This statement rather assumes that the banks were profitable in the first place.

If the dodgy loans and other dodgy practices of many of the bailed out banks were accounted for properly were the profits real or just completely misjudging the risk and hence illusory?

Much of the bubble came from chasing profits from misplaced risk. The banking industry can make money out of nothing but can't keep doing it in perpetuity.

Alfredo Gomez

"That has made it harder for the central bank to act as a lender of last resort..."

It is the FIRST resort, since the primary market offers the cheapest money. If you fail in the auction you can go to the secondary market, that's to say: to ask for money to your friendly competitors (other banks).

Have you studied any Macroeconomics?

Alfredo Gomez

Also you say something that is not exact. Spanish banks are ok, only Saving banks. The household debt is big. Spanish financial sector is strongly regulated with big living wills.

Alfredo Gomez

Sorry for what I am going to say, but reading your article has made me feel embarrassed.

The main present problem in the World economy is a huge overinflated financial side. Let us imagine the World's economy balance sheet: at the left we have the assets/investment/real economy and at the right we have the liabilities/financial sector.

The problem is this balance sheet is unbalanced: the financial sector is huge, massively deregulated, self-speculative (it can grow up without the left side of the economy). It is a sector with many actors that make any dollar fabricated by the FED be invested for only (let us say) 20 cents. In its way from the right side of the balance sheet to the left side, a crowd of banks, intermediaries, speculators have taken their part, and even they have asked the FED for a new loan to finance their buy, producing another wasted dollar. They even have derivatives (a financial product based on the price of another one) that only provide speculation without real transformation of goods or services. Nowadays, the World financial side is people who fabricate their own Monopoly checks to pay their bills.

Banks, a key player in this schema, are responsible of the financial bubble (that had to explode one day and it did). So why do we have to put up with this whining about less profits, increased costs? Who cares? You, Banks, should not have these huge profits. The party is over. So stop whining. It is shameless.

Wim Roffel

Maybe Rosenthal underestimates the effects of the reforms. Because the banking industry could get cheaper money than the rest of business it had developed into a gigantic vampire that used this advantage to have a disproportional part of the profits of the private sector. This leveraging effect will now be reduced.


Frankly, all this talk of banking reform is rather missing the point. The problem the world faces today started with the Fed's loose money, which (lacking any direction from Washington) fuelled an orgy of property speculation. To make matters worse, Bush and his cronies also set off on a spending orgy of their own, slashing tax revenues while at the same time launching two distant wars against an invisible enemy.

Spending countless hours of legislative time tinkering with bank rules is pointless if governments themselves don't follow even basic common sense when managing the economy that the banks operate in. Rather than lecturing the Chinese, Washington policymakers might do well to learn from them -- an uncontrolled economy is not an improvement on a controlled one. Whether you're a communist or a capitalist, you need to direct capital productively.

Of course, no politicians are talking about anything as sensible as that.


Any industry that holds a loaded gun to the economy's temple should be tightly regulated. It seems common sense to regulate providers of water or electricity. Your local bank privides just as critical and just as unsofisticated a service. So there is no reason it should either run amock or be obscenely profitable. In short, I find Mervin King's comparison quite apt.


I had to laugh when I read this article...

With all the naive enthusiasm of a boy scout on his first overnight camping trip, it mentions, "One key provision is the separation of investment banking from commercial banking, known as the Volcker rule."

The Volker rule? WTF? Where I come from, this used to be called the Glass-Steagall Act and it was quietly repealed in 1999 to set up the conditions required for the "economic collapse". The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from risky investments and speculation. It worked quite well for fifty years until it was repealed in 1999 by political shills from the international banking industry.

What this article seems to conveniently overlook is the fact that the "lender of last resort" mentioned therein has pulled the wool (no... the entire sheep) over almost everyone's eyes. Almost...

Some of us still see that same old pattern...

First they create a problem, then they mobilize the media to spread fear to the masses, finally they offer a pre-meditated solution that exactly suits their agenda.


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