Paul Myners, the UK’s financial services minister, has said that US president Barack Obama’s plan to split banks’ risk-taking functions from their deposit-taking activities would not be sufficient to improve the stability of the global financial system alone.
Speaking at the European Market Liquidity Conference in London, Myners said that the investment banking activities targeted in the US president’s plan – private equity, hedge funds and proprietary trading – had played little part in the financial crisis.
“It is difficult to see how one reaches the conclusion that attacking those issues alone will represent a significant step forward in strengthening the robustness of the world’s financial system,” said the financial services secretary to HM Treasury.
Myners suggested that the so-called Volcker rule – named after the former head of the Federal Reserve who proposed it, Paul Volcker – was an over-simplification of the former central banker’s original analysis. “If you go read the G30 report Volcker produced, you will find his conclusions on proprietary trading, private equity and alternative asset management are much more nuanced and granular than the summary that Obama used in producing the Volcker rule a fortnight ago.”
On 1 February, David Wright, deputy director-general at the European Commission’s internal market division, told a London audience that European officials had been given no prior warning of the announcement of the Volcker rule and cast doubt on its wider applicability. “We’re waiting for the precise definitions, but it’s not the traditional way we have regulated in Europe,” he said. Wright asserted that Europe’s approach had traditionally been to reform banks’ processes rather than effecting a change in their structure. According to the Financial Times, a senior ally of German chancellor Angela Merkel has indicated that limits on the size and functions of banks could face opposition in Germany. In a letter to fellow legislators, the Christian Democratic Union’s Leo Dautzenberg said splitting up Germany’s universal banks “would not be without danger”.
In the US, Volcker has been defending the lack of detail in the plan to limit the size and level of risk taken on by banks. “What I want to get out of the system is taxpayer support for speculative activity,” he told the US Senate banking committee on 2 February 2010.
At the London conference, organised by the Association for Financial Markets in Europe, Myners said that “just about every corner” of the financial markets needed to be improved and identified specifically weaknesses in the OTC derivatives market.
He said that although the UK government supported the push for increased standardisation of OTC derivatives, regulators needed to avoid stifling the creation of bespoke derivatives used for risk management purposes.