Can anyone explain this part of David Cameron's demands in the recent European negotiations?
December 9, 2011 3:37 PM Subscribe
Can anyone explain this part of David Cameron's demands in the recent European negotiations?
From The Guardian:
Arguing he had to protect the City of London, Cameron demanded that any transfer of power from national regulators to an EU regulator on financial services be subject to a veto; the UK be free to place higher capital requirements on banks; that the European Banking Authority remain in London; and the European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone. He also argued that non-EU institutions operating in the City but not in the eurozone, such as American banks, should be exempt from EU regulation.
I "get" everything but the highlighted part. That seems to be a demand to allow for specifically GREATER regulation of (presumably) UK banks, which seems contrary to everything else. What am I missing?
From The Guardian:
Arguing he had to protect the City of London, Cameron demanded that any transfer of power from national regulators to an EU regulator on financial services be subject to a veto; the UK be free to place higher capital requirements on banks; that the European Banking Authority remain in London; and the European Central Bank be rebuffed in its attempts to rule that euro-denominated transactions take place within the eurozone. He also argued that non-EU institutions operating in the City but not in the eurozone, such as American banks, should be exempt from EU regulation.
I "get" everything but the highlighted part. That seems to be a demand to allow for specifically GREATER regulation of (presumably) UK banks, which seems contrary to everything else. What am I missing?
I read it the same way--it would appear there remain concerns regarding the potential for the EU to lower, or retain already lower, capital requirements which might free up credit but increase the probability of becoming insolvent. Agree with 'sunburnt's" comment which I just previewed
posted by rmhsinc at 3:58 PM on December 9, 2011
posted by rmhsinc at 3:58 PM on December 9, 2011
Response by poster: Yes, that's my reading as well, but the whole thing with the recent European negotiations (as far as I can tell, and as far as it's being portrayed) was Britain demanding (and not getting) optouts in order to protect the UK financial markets from being more regulated by Europe (as Britain has a far bigger financial market than every other European country). So I'm unclear why one of Cameron's demands was for the banks to have a higher capital requirement? Especially, as the quote seems to imply, specifically UK banks - surely that would make them less "competitive" compared to other banks (where competitive = more able to take risks and ruin the economy...)?
posted by Hartster at 4:05 PM on December 9, 2011
posted by Hartster at 4:05 PM on December 9, 2011
It would also make them less likely to collapse, which would mean they'd be viewed as being less risky, and be attractive targets for capital flight.
The upcoming run on European banks is going to be a wonder to behold. But all that money has to go somewhere. Right now some of it is going to Germany. But wouldn't it be nice if a lot of it ended up in London?
posted by Chocolate Pickle at 4:36 PM on December 9, 2011
The upcoming run on European banks is going to be a wonder to behold. But all that money has to go somewhere. Right now some of it is going to Germany. But wouldn't it be nice if a lot of it ended up in London?
posted by Chocolate Pickle at 4:36 PM on December 9, 2011
the UK be free to place higher capital requirements on banks
Could it be that he wants the UK to retain the authority from raising capital requirements of FOREIGN banks operating in the city (or its territory generally speaking) ? If requirements were higher for foreign banks than british ones in the UK, you'd expect the british banks to end up with a larger share of the business than their competitors.
Alternatievly, he may be trying to protect them from the run on the bank Chocolat Pickle mentioned (as of whether this would really happen...).
posted by that_guy at 4:54 PM on December 9, 2011
Could it be that he wants the UK to retain the authority from raising capital requirements of FOREIGN banks operating in the city (or its territory generally speaking) ? If requirements were higher for foreign banks than british ones in the UK, you'd expect the british banks to end up with a larger share of the business than their competitors.
Alternatievly, he may be trying to protect them from the run on the bank Chocolat Pickle mentioned (as of whether this would really happen...).
posted by that_guy at 4:54 PM on December 9, 2011
This is the quandary of consumer-prevention regulation; increased regulation may provide more protection against ultimate harm, e.g. consumer protection regulation against lead in toys, but it also puts a greater burden on the small guy (to hire a lab to prove his toys are lead-free) than it does on the big guy (who owns his own lab and can test his high-end dolls in-house).
I think Cameron's goal here is to keep enough power over the British banks that he can demand they're strong enough to resist the hit, should the foreign bank dominoes start falling.
It does reduce competition inside the UK, and it's anti-capitalist in that sense, but we're also talking about the international pan-european scope of banking. This move may make UK banks more attractive (than, say, Swiss banks) to conservative investors, though whether they're more attractive than cash under a mattress, it's hard to say.
posted by Sunburnt at 5:11 PM on December 9, 2011
I think Cameron's goal here is to keep enough power over the British banks that he can demand they're strong enough to resist the hit, should the foreign bank dominoes start falling.
It does reduce competition inside the UK, and it's anti-capitalist in that sense, but we're also talking about the international pan-european scope of banking. This move may make UK banks more attractive (than, say, Swiss banks) to conservative investors, though whether they're more attractive than cash under a mattress, it's hard to say.
posted by Sunburnt at 5:11 PM on December 9, 2011
Er, that should be consumer-protection regulation. Consumer-prevention regulation is definitely anti-competitive. :-)
posted by Sunburnt at 5:12 PM on December 9, 2011
posted by Sunburnt at 5:12 PM on December 9, 2011
The Vickers banking commission has recommended higher capital requirements and an EU wide cap on the maximum level of capital regulators can demand would prevent this being implemented.
I'm not entirely certain why other governments so strongly oppose the idea of UK banks being more strongly capitalised. It could be to do with the principle that no one EU member banking system should seem more secure than another (hence also calls for standardising deposit insurance across Europe).
It may also be that some governments fear they would then be under immediate pressure to bring in similar standards, which their institutions will obviously not want - they're unhappy enough about the outcome of the latest round of stress tests. (While UK banks still have many problems, many Eurozone ones are in a far worse state - Commerzbank seems likely to require nationalisation and I doubt that anyone understands the true position of many of the French banks, including the bank management themselves.)
Or it could be some other point of political horse-trading that I'm completely missing. There is a lot more going on here than the UK simply being obnoxious (from the point of view of many participants, the UK demands probably just seemed bafflingly irrelevant, but there was almost certainly a specific and long-running issue of, say, Anglo-French disagreement behind them).
posted by Temagami at 5:37 PM on December 9, 2011 [1 favorite]
I'm not entirely certain why other governments so strongly oppose the idea of UK banks being more strongly capitalised. It could be to do with the principle that no one EU member banking system should seem more secure than another (hence also calls for standardising deposit insurance across Europe).
It may also be that some governments fear they would then be under immediate pressure to bring in similar standards, which their institutions will obviously not want - they're unhappy enough about the outcome of the latest round of stress tests. (While UK banks still have many problems, many Eurozone ones are in a far worse state - Commerzbank seems likely to require nationalisation and I doubt that anyone understands the true position of many of the French banks, including the bank management themselves.)
Or it could be some other point of political horse-trading that I'm completely missing. There is a lot more going on here than the UK simply being obnoxious (from the point of view of many participants, the UK demands probably just seemed bafflingly irrelevant, but there was almost certainly a specific and long-running issue of, say, Anglo-French disagreement behind them).
posted by Temagami at 5:37 PM on December 9, 2011 [1 favorite]
It could be to do with the principle that no one EU member banking system should seem more secure than another (hence also calls for standardising deposit insurance across Europe).
Just to clarify, I don't exactly mean this is a formal principle of EU banking regulation - but the idea of the single market is that things should be standardised across Europe as much as possible.
After the crisis, when governments were altering their deposit protection rules almost daily, the idea emerged that EU rules should go beyond setting a minimum deposit guarantee to set an absolutely standardised one. This provides for consumer protection to be the same in all countries - but obviously it also reduces the prospect of capital flight between countries as depositors move to take advantage of the best guarantee.
Hence as an extension of that, you could see an argument that all EU banks should have the same capital standards (Basel III or whatever you settle on) to prevent any one country seeming to have an advantage of that score.
Someone who actually follows these kinds of debates much more than me may be able to say whether that line of thinking is what's going on or not.
posted by Temagami at 5:54 PM on December 9, 2011
Just to clarify, I don't exactly mean this is a formal principle of EU banking regulation - but the idea of the single market is that things should be standardised across Europe as much as possible.
After the crisis, when governments were altering their deposit protection rules almost daily, the idea emerged that EU rules should go beyond setting a minimum deposit guarantee to set an absolutely standardised one. This provides for consumer protection to be the same in all countries - but obviously it also reduces the prospect of capital flight between countries as depositors move to take advantage of the best guarantee.
Hence as an extension of that, you could see an argument that all EU banks should have the same capital standards (Basel III or whatever you settle on) to prevent any one country seeming to have an advantage of that score.
Someone who actually follows these kinds of debates much more than me may be able to say whether that line of thinking is what's going on or not.
posted by Temagami at 5:54 PM on December 9, 2011
the UK be free to place higher capital requirements on banks
I think the key words here are " be free" to do so, which does not mean anything other than that they are free to require higher capital requirements from the banks should they wish to do so, which they may or may not do. None of the articles I've read have expanded upon that one point and you're right in thinking that higher capital requirements can act as a drag on banks' growth. You're also right in being suspicious of Cameron's motives as this seems like a grand pronouncement of somehow being regulation-friendly, which business-friendly conservatives generally are not.
However, iirc, the coalition government has been making noises about increasing capital reserves on banks in light of recommendations from the Vickers commission that Temegami mentioned, but I think it's kind of beside the point in this instance. I think that David Cameron used the veto specifically because it would take the financial center, which is a huge part of the British economy, out of London and that the UK would be subject to excessive EU regulations. This is the main - and most important - part, I think. The UK also is specifically is looking to protect British-based US banks from EU regulation (as you mentioned and we can probably imagine why). The Economist has a good write up here.
So my reading of it - and I very well could be wrong - is the thing about higher capital requirements quoted above is secondary and incidental to the real concerns that David Cameron has; essentially that London does not lose its status as the financial capital of Europe.
posted by triggerfinger at 8:13 PM on December 9, 2011 [1 favorite]
I think the key words here are " be free" to do so, which does not mean anything other than that they are free to require higher capital requirements from the banks should they wish to do so, which they may or may not do. None of the articles I've read have expanded upon that one point and you're right in thinking that higher capital requirements can act as a drag on banks' growth. You're also right in being suspicious of Cameron's motives as this seems like a grand pronouncement of somehow being regulation-friendly, which business-friendly conservatives generally are not.
However, iirc, the coalition government has been making noises about increasing capital reserves on banks in light of recommendations from the Vickers commission that Temegami mentioned, but I think it's kind of beside the point in this instance. I think that David Cameron used the veto specifically because it would take the financial center, which is a huge part of the British economy, out of London and that the UK would be subject to excessive EU regulations. This is the main - and most important - part, I think. The UK also is specifically is looking to protect British-based US banks from EU regulation (as you mentioned and we can probably imagine why). The Economist has a good write up here.
So my reading of it - and I very well could be wrong - is the thing about higher capital requirements quoted above is secondary and incidental to the real concerns that David Cameron has; essentially that London does not lose its status as the financial capital of Europe.
posted by triggerfinger at 8:13 PM on December 9, 2011 [1 favorite]
This article goes a long way to explaining the politics behind it.
posted by Chocolate Pickle at 2:03 PM on December 10, 2011
posted by Chocolate Pickle at 2:03 PM on December 10, 2011
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posted by Sunburnt at 3:55 PM on December 9, 2011