Excuse my indulgence, but I need to get something off my chest that doesn't really have anything to do with securities lending, but adds to the negative public perception of banking activity including our niche business.
I was watching Sky News this morning before heading to Stockholm to teach the ISLA/FinTuition "Introduction to Securities Lending" course and heard a comment that has sent me over the edge on a particular subject.
Michelle Dewberry was talking about the Keweku Adoboli story, found guilty of two counts of fraud and not guilty on four other counts. Her first comment was that this showed once again why retail and investment banking need to be separated, and others nodded their agreement. The need for separation has been a common theme put forward by politicians and the media in recent years.
I don't get it, so maybe it's me. Adoboli's employer, UBS isn't a retail bank in the UK, where he worked, committed the fraud and was found guilty. The UK government/taxpayers weren't required to give any support to UBS as a result of his actions. The losses UBS experienced were absorbed within the bank and in Switzerland, where it is a retail bank, no public money was required to deal with the losses. So how would separation between retail and investment banking have made a difference?
It is a fact that Northern Rock, RBS and Lloyds Bank all needed UK public funds to rescue them during the crisis. Northern Rock was essentially a mortgage lender - a traditional banking activity NOT investment banking. Although RBS was involved in investment banking, what took it over the edge was over-reaching expansion in its acquisition of ABN AMRO. That capped a long period of expansion, typically into banks that did traditional banking, not necessarily driven by investment banking. Indeed, after the rescue in the UK, RBS's losses have been reduced by investment banking division profits. In other words, UK taxpayers would be worse off if it wasn't for the investment bank. Lloyds was forced by Gordon Brown to buy HBOS, with disastrous results. Both Lloyds and HBOS were overwhelmingly "traditional" banks, rather than investment banks.
The latest banking scandals,, involving LIBOR rate rigging and PPI insurance premiums make it 1-1 for investment banking scandals compared to retail banking scandals.
So as far as I am concerned the whole push against "casino banking" as our politicians often call it, is more smoke and mirrors to make it appear they are doing something. Can't see how it actually adds any level of protection to the public purse-strings. If anything, given the evidence, it seems that the public needs protection against the actions of retail banking activity.
PS. Wading through the FSB report on shadow banking. Comments?
