‘Breaking up big banks unrealistic’

The global financial industry should not be revamped, to try to ensure no bank was too big to fail, Stephen Green, chairman of HSBC said on Tuesday. “It is unrealistic to believe that the industry can be reconstructed such that individual institutions are not too big to fail. Quite small and simple banks are too big to fail in a strict sense,” Green said.

“The notion that the failure of a bank can be contained by the conventional legal and administrative processes for handling business failures is nonsense.” Green said ‘narrow banking’ was not the answer to ensure stability. “When you look at the different things that commercial banks do, you can’t segregate those out meaningfully in this day of integrated capital markets,” he said.  
 
Peter Sands, CEO of Standard Chartered, agreed that breaking up the big banks was not the answer.    “There is a case for restricting proprietary risk-taking, but a new Glass-Steagall Act is not the way to do it,” Sands said. “It gives an illusion of comfort, it won’t work.”
The Glass-Steagall Act was a US federal law adopted in 1933 that set up legal barriers between commercial and investment banking in response to the stock market crash.  
     
Green said there was an ‘emerging regulatory consensus’ on what responsible pay for bankers should look like, including deferrals and clawbacks of bonus payments.    However, he said it was not clear the industry appreciated the seriousness of the issue and the market would continue to dictate the overall level of pay.

“I think everybody has recognised that trying to cap the quantum (pay level) and intervene directly in the pricing in the market is difficult to do,” Green said. It was correct for banks to ensure transparency and deferral of pay to account for tail risks. “If you get that right the market will work its medicine appropriately in regard to quantum,” he said.    There have been worrying signs, however, that big incentive packages for bankers were being offered again.   

“We have seen recently some signs of golden hellos creeping back in a way that makes your heart sink. It’s as if some people haven’t got the message,” he said. “Whether that’’s going to be pervasive or not, I hope not. Time will tell,” he said. Reuters