Published in Dr. Noronha´s weekly column “Última Instância – Legal Magazine”, on October 05, 2011, São Paulo, SP, Brazil.
Towards the middle of September, 2011, the Independent Commission on Banking (ICB) created by the British government in June of 2010 released its report on the perceived vulnerabilities of the United Kingdom’s financial services sector, following the events which triggered, in 2008, the current financial and economic crisis.
The mission of the ICB was to suggest action with the purpose of promoting stability and competition; reducing systemic risks; minimizing the impact of bank failures; as well as addressing some questions pertaining to consumer relations and access of economic agents to financing.
The ICB reported to the Cabinet Commission on Banking, i.e., to the government of the UK. Thus, the term “independent” is relative and necessary to promote the specious view that the nature of the commission is autonomous.
That is far from the reality, as in that country, government commissions for centuries have represented only the well entrenched robust interests of the ruling classes and their economic concerns.
Thus, rather unsurprisingly, the recommendations put forward by the ICB were not only far from revolutionary, but would fail basic standards of bank regulation well established internationally since the 1930s, following the standards of the now defunct US legislation, the Glass-Steagall Act of 1933, repealed in 1999.
As it is known, the Glass-Steagall Act prohibited a bank holding company from owning other financial companies, which in other more practical words prevented commercial banks from owning investment banks and other financial companies engaged in riskier pursuits.
The rationale behind the Glass-Steagall Act was that the commercial banks had tangible assets; a mission of financing the business sector and taking deposits from the general public; whilst the investment banks had high risk operations.
Thus, the separation of the two activities was necessary to preserve the foundation of the economic activities of the country and security for the depositors. The revocation of the Act in 1999, a job of neo-liberal politicians, has been correctly perceived as one of the many regulatory shortcomings to cause the financial and economic crisis of 2008.
Accordingly, the ICB not unsurprisingly proposed an effete Chinese wall, a “ring-fence”, between the retail and investment-banking operations of UK banks. This, of course, in an era of global banking activities, cannot avoid the contamination of the healthy part of the conglomerate by the rotten side.
The mediocre report of the ICB is very bad news indeed for the UK and its general public!
Similar efforts are being made in the United States of America (USA) with the proposed new financial reform law, within which context the Commodities Futures Trading Commission, has recently proposed physical limits of 25% for derivative contracts.
This individual suggestion, although shy in quantitative terms, is conceptually very appropriate, as there is the urgent necessity of removing the derivative markets from the casino environment and returning it to the responsible financial services environment.