British Banks’ Comedy of Terrors
Opinion leaders around the world look to the British for a clever and nuanced approach to financial-sector policy. But, with the UK authorities proposing ludicrously low capital ratios for banks, they currently look in vain.
WASHINGTON, DC – The devil is always in the details. And the greatest devils of our economic age lurk in the details of how officials regard the capital – the equity funding – of our largest banks. Government officials have identified far too closely with the distorted, self-interested worldview of global banking executives. The result is great peril for the rest of us.
In this surreal world, the United Kingdom takes on disproportionate influence, because London is still a top financial center – and because the biggest banks in the United States and Europe have proved very effective at playing off American and British regulators against one another. Opinion leaders around the world look to the British for a clever and nuanced approach to financial-sector policy. Unfortunately, they currently look in vain.
To understand the precise problem, you must dip into the latest details of the Prudential Regulatory Authority’s “capital shortfall exercise” with eight major UK banks. I won’t pretend that the PRA’s work is easy reading for a layperson; but anyone who spends a little time with the documents will first laugh and then cry.