Loan subsidies - abuse is difficult to police

The problem with loan subsidy schemes as proposed in the UK is: Who will receive these preferential terms? Will it be based on the old school tie, or who the bank manager plays golf with? The beauty of market economies is that the old element of feudalism is replaced by criteria of efficiency. All borrowers should be treated equally if they are good for a loan, and those not making the grade go empty handed. These subsidies create a tremendous amount of moral hazard - the same can be said for all subsidised loan schemes, be they managed by 'Development Banks', the EIB, EBRD etc.

What should be the right level of Margin?

An article in today's Financial Times bemoans the shrinking level of collateral and gives the impression that this would be something to be concerned about - rather than give an indication that the financial system is on the way to a more sensible future. Haircuts or Margins are still way below levels required if prudent standards would be applied. As I said from long before the 2007-2009 credit crisis they should allow for one-day moves in asset prices of as much as 30 percent.  This would of course drastically reduce the overall volume of speculative and risk positions and therefore make it much less likely that price moves of such a magnitude would happen.

Tobin Tax - another window tax?

One could argue that the Financial Transaction Tax (aka Tobin Tax) is nothing to get excited about, there are taxes on air tickets, house purchases for example. But there also once has a tax on the size/number of windows in some countries. All taxes on specific transactions are questionable as there is not much logic that supports them and they are easily abused in the politician's neverending quest to finance ever-more ambitious spending plans. Most of these taxes lack a proper democratic mandate and they are highly discriminatory and arbitrary.

More stress tests for banks don't make sense

writes Thomas Brown

MF Global Bankruptcy torpedoes Futures Markets

When Warren Buffett spoke of derivatives as 'weapons of mass destruction' not a few belittled him as old-fashioned. Now that the full horror story surrounding this case of cronyism and ineptitude unfolds not many are laughing, least of all the victims of Corzine's megalomania. Maybe it is time to bring in full personal liability to all senior managers of financial institutions?

UBS: Reduced Assets should be more than enough

UBS will reduce the assets of the investment bank according to an investor presentation. Offering a full range of services as a broker does not require huge inventories. To the contrary, any savvy trader - from the merchant running a market stall upward - knows that the trick is to turn over the merchandise as quickly and often as possible. Having excessive inventories basically means that the dealing operation is turned into an investment business - this confuses the mission and opens the door for mismanagement. Sfr 145 billion in assets should be more than enough to run a world-class trading/broking business. If incumbent line managers cannot make it work then UBS should look for new ones.

Less Risk Control, more Common Sense and Trust

We agree with Anthony Hilton (Evening Standard, 16 Nov 2011) when he says that "we don't need yet more millions spent on risk control (...) what we need to learn is to make proper use of the systems we already have." We would caution that today's mega banks make it very difficult to develop a cooperative management culture based on trust and knowing what your colleagues are up to. Managers at all levels are often too busy engage in petty power struggles while angling for the next promotion and pay too little attention to the challenges of running the business.

No amount of Bank Capital is ever enough in a Panic

The European Banking Authority (EBA) will publish new information about the capital requirements of European Banks this Friday. But unless there is a drastic hike in capital ratios or - what we recommend for a long time - a move towards limited liability banking (and capital requirements on all OTC transactions) this new information will be as useless as the previous exercises in 'fessing up' by the banking system.

Derivative Risks - URGENT ACTION REQUIRED

While we are not in the camp of those predicting a black swan event in the global market for OTC derivatives we would none-the-less urge regulators to address the real - and perceived - risks associated with the gigantic nominal amount of out standings. These dwarf the total of the World's GDP by a substantial amount and while they may be hedged or netted we all know that systems of risk management and control can (and do - see MF Global!) fail. To this effect regulators should decree strong incentives to bring as much of the derivative trading onto a trading platform that assures proper netting and clearing. In addition, capital requirements on OTC trading should be brought into line with those assessed on lending and trading in securities.

Never underestimate intelligence of Brussels bureaucrats

When the Kommissar for Financial Affairs suggests that it should be possible to sue rating agencies for 'wrong' ratings he demonstrates the low competence of the bureaucracy that is trying to run our lives. We are often critical of rating agencies but to make it possible to sue because a rating is supposedly wrong opens a can of worms. Ratings - like any investment opinion - are by necessity subjective opinions that may be correct or wrong. There is no 'right' or 'wrong' rating opinion and therefore it should be left to the users of rating services to form their own judgement on the correctness of an individual rating opinion. Would it not be much more useful to allow citizens to sue bureaucrats for their mistakes?