The US Government is currently reaching it’s conclusions over which large non bank institutions tick all or most of the boxes necessary to be viewed as Systemically Important Financial Institutions or “SIFIS” and are therefore “Too Big To Fail”.
Naturally, the US Government argues, any such organisation cannot then be allowed to get themselves into a “failure position” and therefore will need a greater degree of oversight scrutiny and special regulation by Federal Government in order to protect themselves, the government, the economy and ultimately the american people from such a (..nother..) failure event ever happening.
Companies such as AIG, with a very large insurance “footprint” in the US,indeed the world, have been cited as potentially needing special attention. AIG are of course fighting this vigorously and are arguing they would have no significant or systemic impact on the US economy if they got into trouble.
It appears that no one wants the increased financial and management burden and ultimately increased accountability that additional regulation will inevitably entail.
It is also being argued that this whole procedure would not have prevented the recent credit crunch because it by-passes the arguable causal factors involved namely, prevailing US government policy regarding availability of loans and the setting of low interest rates. All this is of course worthy of greater debate.
However, regardless of debate, in true historic fashion, it can be viewed that whatever happens on the other side of the Atlantic (sometimes cynically referred to as the semantic ocean – a reference to nitty picky rules which originate over yonder and somehow make it into European/UK law without further thought..) will at some point soon influence regulatory thinking over here.
The simple solution to avoid the “List”, it has been said in various quarters, will be for organisations to change their balance sheet asset mix to avoid being “ticked”. This will surely be counter productive and potentially could create more systemic risk as companies with the “winning formula” all gravitate to the same kind of asset mix as each other, with no variation in the market and therefore no real balance either.
Over this side of the ocean, Britain is poised for a new scuffle with Europe over control of the City of London, the Financial Times reports.
Supervisory issues are again at the fore and Britain is confronting core features of plans for eurozone banking union that will make it easier for Europe to overrule London on contentious supervisory matters in the guise of the European Banking Authority.
But the battle is far from over.
As evidenced publicly in the Olympics and Paralympics, the UK as a nation can and does punch well above its weight. London is still the largest financial marketplace in the world with New York and others trailing behind.
The idea that Eurozone would conceive a notion that it could or even should run London is an interesting one.
But this cannot yet be dismissed lightly.
How might all this affect UK investors and borrowers? The main effect could simply be an increased cost of doing business in a regulated marketplace. This will potentially push up fee and other charges or reduce profits – no prizes for guessing the more likely…