Animal Spirits still alive in City

Anyone who doubted that the credit and market crisis of the past two years has put a lasting dampener on the animal spirits in the City of London will have received a great surprise when he opened today's papers. A respected analyst is reported to plan the launch of a new bank and a senior corporate banker is offering to buy loans off his previous employer at a substantial discount. The really interesting thing is that the analyst stuck to his negative view on some bank shares while theses shares experienced a stratospheric recovery and the lending officer was one of the main drivers behind the loans that are now causing major headaches for his former employer. That is chutzpah!

Seven dwarfs in Stockholm

The seven finance ministers calling for strict limits on banker's bonuses in an open-ed article today (we spotted it first in a reference to Dagens Nyheter) do their intellectual standing no favours. If their collective wisdom only leads them to express crude judgements about the size of bonuses paid in financial services it is a sign of intellectual poverty. Rather than calling bonuses 'indecent' the ministers should concentrate on the causes of high bonuses. Otherwise their posturing lacks any credibility. Of course, we would agree that bonus payments in many cases are too high but that is due to lack of regulation, distortion in the competition and similar structural deficiencies in financial markets. Name-calling alone will not do as the same argument could be applied to compensation of sports stars, media stars and footloose international business men. Just remember that a certain Mr. Mittal is always listed as 'Briton's richest man' but it is unclear how much tax he pays in the country.

Publish all details of stress-tests!

The news that the UK Treasury may ask the FSA to conduct a detailed stress-test on Lloyds-TSB before agreeing that the bank does not participate in the asset protection scheme and launches a share issue instead should serve as a reminder that the stress tests performed so far in the US and the UK have not really helped to improve confidence in the banking sector. Of course, the fact that the authorities claimed that the recent stress tests were satisfactory did help shares of banks to rebound but this was more due to the fact that markets simply realised that the governments would stand behind the institutions deemed to big to fail and not because investors really could see behind the official smoke-screen. If all numbers would be in the open investors could really draw their own conclusions and would probably have much more confidence in the viability of the banking sector rather than rely on the say-so of the regulators. The same argument can be made with respect to the rating process that would be to a large extent supplanted by due diligence conducted by the investing public.