Profit Time

Mervyn King speaks for bank reform

Mervyn King, the Governor of Bank of England, has advocated the need for more stringent rules to secure financial stability. In the wake of the global economic meltdown that hit the world financial sector in 2008, he wants the new coalition government in UK to leave no stone unturned to reform the banking sector.

King believes that interest rates alone are insufficient to balance and root out the danger of excesses accumulating in the financial sector. He’s mentioned in a foreword to the central  bank’s 2010 annual report that we can no longer afford the risk of allowing banks to operate with the belief that they’re ‘too big to fail’ .

He strongly feels that additional policy tools are required to meet this purpose. The financial system at any cost shouldn’t regress to its former ways pretending that no menace of recession has ever occurred. Every opportunity to improve the system must be availed. He’s argued in favor of more rigorous rules and policies to ward off the danger of another recession-like situation and the gradual collapse of the global economic sector like the one in 2008. He has always wanted and still speaks out about the need for forcing retail banks to separate activities like proprietary trading that involves a lot of risk. Incidentally the latter idea is favored by Chancellor Gordon Osborne.

The Conservative-Liberal Democrat coalition has agreed to set up an independent commission for investigating the matter of separate management of retail and investment banking.

King is also a supporter of the bank’s inflation-targeting framework and feels that the difference between the actually consumer price and the target value would be short-lived. He’s written that inflation has remained low and is on the way to fulfil the target in the medium term.

King believes that the aforementioned framework has successfully warded off the menace created by the recession.

Tags: Economy, Finance

J P Morgan fined by FSA

J P Morgan Chase & Co, the U.S. investment bank, has been slapped a fine of a whopping 33.32 million pounds ($48.2m) by the The Financial Services Authority (FSA) in Britain for failing to protect billions of dollars of money of its own clients over a time period of nearly seven years. FSA has warned other banks in Britain, stating on Thursday that a UK unit of the bank, J P Morgan Securities Ltd, has been unable to properly protect about $1.9 billion and $23 billion of customers’ money between Nov. 2002 and July 2009

The FSA has issued the rule that all firms will have to keep their customers’ money in separate accounts from the firm’s money for protecting it in case the financial firm becomes unable to meet financial obligations. But J P Morgan has failed to separate client money held by its futures and options business (F&O) with J P Morgan Chase Bank N.A. (JPMCB). The error went unnoticed for almost seven years.

Margaret Cole, the FSA’s head of enforcement has said that this fine will alert other firms of all possible sizes to segregate client money following the FSA rules. She severely mentioned that firms shouldn’t delay in this matter. She also mentioned that several other cases are also pending.

Reportedly, the act was not deliberate on part of the bank and no clients has suffered losses. JP Morgan had informed about the error the moment it found out and had helped the FSA during the investigation. For that action, it has received a total 30% discount on the original fine of £47.6m.

Simon Morris from CMS has said that if this penalty doesn’t make every senior manager sit up and make sure that he or she is managing the risks adequately, then nothing else can. He has expressed surprise over the fact that FSA hasn’t charged the senior managers as it usually does.

Tags: Finance

US Senate Standing up for Sweeping Wall Street Reform Bill

Tags: Finance