Lehman Brothers + 5 years
12:00 AM, Sep 14, 2013 • By IRWIN M. STELZER
As for Dodd-Frank, the new regulations should help. But even the best regulators are often no match for the bevy of lawyers that regulated companies can unleash to keep one step ahead of the watchdogs. The six biggest US banks have laid out over $100 billion in legal costs since the crisis, which is more than they have paid in dividends in the past five years, reflecting both the failure of management to control the business, and preparation for regulatory battles to come.
Vickers’s plan for ring-fencing deposit-taking from the riskier businesses in which banks engage would be a step in the right direction. The Volcker rule prohibiting banks from making bets with their own money would be another, but a conclave of regulators has been fighting to define it for three years while bank lawyers plot routes around whatever definition of such terms as “market making” the regulators come up with. And senator John McCain is a lonely voice calling for implementing Sandy Weil’s thought with a new Glass-Steagall Act to force a complete separation of plain-vanilla deposit-taking and lending from investment banking.
As politicians say when they want some unpleasantness to be forgotten, “Time to move on”. To higher capitaI requirements and ring fencing (Vickers), to a rule preventing excessive risk-taking (Volcker), to structural separation of investment and deposit-taking by banks that have an implicit federal guarantee (Weil and McCain). Or, dare we think it, to breaking up the big banks. Smaller banks would create less systemic risk, more competition for small business customers, and allow managers to pay more attention to the quality of the loans they make. My own experience in industries from electricity and gas supply to telecoms suggests that structural reform might accomplish what regulation might not -- reduce the likelihood of another financial catastrophe, and at acceptable cost.
Oh, yes. The time during which the government can file charges against Lehman executives expires at the end of this month. No such charges will be filed, the professionals at the SEC having resisted the pressure from political appointees to bring a case that they feel is not supported by the evidence. One such professional said, “Our job is to do justice.” Refreshing.
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