Coppola Comment

  As the world reeled in shock at the sudden collapse of Silicon Valley Bank (SVB), another bank quietly went under. On Sunday 12th March, the U.S. Treasury, Federal Reserve and FDIC announced that all SVB depositors, whether insured or not, would have access to their funds from Monday. And then they added:  We are also announcing a similar systemic risk exception for Signature Bank, New York, which was closed today by its state chartering authority. Signature Bank NY's state chartering authority was the New York State Department of Financial Services (NY DFS). It posted this on its website :  On Sunday, March 12, 2023, the New York State Department of Financial Services (DFS) took possession of Signature Bank in order to protect depositors. All depositors will be made whole.  DFS has appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, and the FDIC has transferred all of the deposits and substantially all of the assets of Signature Bank to Signature Bridge B

In a lecture presented at the 2011 IMF Annual Research Conference, Hyun Song Shin of Princeton University argued that the driver of the 2007-8 financial crisis was not a global saving glut so much as a global banking glut. He highlighted the role of the European banks in inflating the credit bubble that abruptly burst at the height of the crisis, causing a string of failures of banks and other financial institutions, and economic distress around the globe. European banks borrowed large amounts of US dollars through the money markets and invested them in US asset-backed securities via the US's shadow banking system. In effect, they acted as if they were US banks, but in Europe and therefore beyond the reach of US bank regulation. This diagram shows how it worked (the “border” is the residency border beyond which US bank regulation has no traction): But it is not the model itself so much as Shin's remarks about the role of European regulation after the introduction of the

HSBC's results were bad. But they could get a whole lot worse. The list of lawsuits they are facing resembles Don Giovanni's catalogue of conquests, as eloquently explained by his accomplice Leporello. Don Giovanni was, of course, eventually sent to hell as retribution for his crimes. Will HSBC, too, be consigned to fire and brimstone? Somehow I doubt it... My Forbes piece on HSBC's catalogue of lawsuits is here . And if you like Mozart, Leporello's "catalogue aria" is here . The Italian words and English translation are  here .

The FT reports that due to “modest but rising credit growth”, the Bank of England’s Financial Policy Committee (FPC) considered raising banks’ countercyclical capital buffer. According to the FT's Caroline Bingham: This measure requires lenders to build up capital in good times to draw down in more challenging times.  And she goes on to say this: The prospect of yet more capital that banks must set aside would come on top of capital rules on a European and global basis that lenders must implement. They complain that these ever-increasing buffers weigh on their profits and therefore lending ability. No, Caroline, no. Banks do not "build up" or “set aside” capital. Capital is an integral part of the balance sheet structure. As the Bank of England explains , it is a form of funding: It can be misleading to think of capital as ‘held’ or ‘set aside’ by banks; capital is not an asset. Rather, it is a form of funding — one that can absorb losses that could otherwis

My latest post at Pieria considers the sizeable role of the Eurodollar market in the unsustainable growth of credit that led to the 2007-8 financial crisis.  In a lecture presented at the 2011 IMF Annual Research Conference, Hyun Song Shin of Princeton University argued that the driver of the 2007-8 financial crisis was not a global saving glut so much as a global banking glut. He highlighted the role of the European banks in inflating the credit bubble that abruptly burst at the height of the crisis, causing a string of failures of banks and other financial institutions, and economic distress around the globe. European banks borrowed large amounts of US dollars through the money markets and invested them in US asset-backed securities via the US's shadow banking system. In effect, they acted as if they were US banks, but in Europe and therefore beyond the reach of US bank regulation...... What was it that drove the expansion of the Eurodollar market and encouraged European

Oh dear, Wonga..... The UK’s biggest payday lender, Wonga, is in trouble.  Its profits  have fallen by 53%. But that is the least of its worries.  Actually its biggest headache is the FCA. And Wonga is not the only payday lender in trouble. The whole industry is disintegrating. Find out why here .

I've decided I don't like Lloyds Banking Group*. It presents itself as this pure retail bank that would never behave in such a dastardly manner as the universal banks with their greedy rapacious investment banking arms. But the reality is far different. LBG has just been fined a total of £218m jointly by the FCA and American regulators for rigging benchmark rates including Libor. That is the crime for which the Barclays' chief Bob Diamond lost his job. But we're all used to hearing about Libor fines now: LBG is the seventh bank to be fined (and there are more to come). The seven banks fined so far, with the amounts, are as follows (chart courtesy of the Wall Street Journal ) : OK, so LBG's fine doesn't look that bad, does it? It's the smallest fine of any of the big banks. But in this case the size of the total fine is not a good indicator of the seriousness of the offence. To find out what is really going on, we need to break it down. The fine is ma

Yes, I know you are all bored with BNP Paribas. Now the penalty has been issued, let's move on. Other scandals are beckoning..... But bear with me for a little longer. I have something to say about BNP Paribas's penalty. It's not enough. The US regulators let them off far too lightly considering the scale and duration of their crimes. To find out why I say this, click here .

My latest post at Forbes looks at the implications for Barclays and for the whole financial industry of the latest in a long line of lawsuits. A few weeks ago, following  awful trading results , much of Barclays’ FICC business was consigned to the outer darkness – placed in Barclays’ internal “bad bank” for eventual sale or wind-up. Barclays’ investment bank was to be reduced to a customer service business around an equities trading core – the former Lehman Brothers equities business. But now that equities trading core has itself been dealt a major blow. The New York Attorney General has  filed a lawsuit  against Barclays for misleading clients regarding the presence and activities of HFT traders in its so-called “dark pool”, Barclays LX. Read on here . .

I recently had the pleasure of attending the European Venture Capital Association's 2014 Symposium in Vienna. Perhaps surprisingly, the theme of the conference was not "how can we survive secular stagnation?", but "how can we get people to understand the value we bring to society?". Though perhaps these two concerns are one and the same..... Read my thoughts at Pieria here . Oh, and this was the view from my hotel room window in Vienna!

US regulators are about to throw the book at the French bank BNP Paribas: BNP Paribas is facing a potential fine of up to $10bn for breaking sanctions imposed by the US government on Iran. This would be by far the largest fine ever imposed on a bank by US regulators for sanctions-breaking, and one of the largest regulatory fines in history. BNP is by no means the first bank to be fined by the US for sanctions-breaking.... Indeed it is not. The list is long and expensive. But BNP's penalty is an order of magnitude greater than any other bank's, and it faces other penalties too. French politicians are none too happy about this, and European central bankers and regulators are concerned. Is this fine really such a good idea? Read the whole post on Forbes .  

Gold fixing, this time. Here's the FCA's summary : The Financial Conduct Authority (FCA) has fined Barclays Bank plc (Barclays) £26,033,500 for failing to adequately manage conflicts of interest between itself and its customers as well as systems and controls failings, in relation to the Gold Fixing. These failures continued from 2004 to 2013. It seems to have been a rogue trader, one Daniel Plunkett, who rigged the 3 pm Gold Fixing to avoid making a payment to a customer. He has been fined as well and struck off by the FCA. But the timing is exquisite.  The very day after Barclays was censured by the FCA for rigging Libor and Euribor, Plunkett rigged the gold fixing in his favour. Clearly nothing had been learned from the FCA's enforcement action. This is worrying, given the high profile of the FCA's investigation into Libor-rigging at Barclays, and the fact that it cost the bank its CEO as well as regulatory fines and untold reputational damage. It's also i

My latest post at Pieria is the second article from the ICAEW's recent conference on the Future of Banking. It reviews the scope and extent of regulatory change since the 2008 financial crisis, and asks whether we are maybe overdoing it? Bad behaviour by banks was the primary cause of the 2008 financial crisis. Victoria Saporta of the PRA describes the pre-crisis period as the “partying phase”. Banks increased their leverage, in some cases to more than 60%, which left them very vulnerable to even small shocks to asset value. And they reduced their liquid assets, which combined with their high leverage made them highly exposed to damaging runs. But banks were not the only partygoers: household debt/income ratio grew to over 160%, concealed by low mortgage spreads that did not reflect the true risk of the lending. In contrast, the aftermath of the crisis is a time of “healing” - repairing damaged banks and fixing the vulnerabilities that existed pre-crisis. Since the crisis,

In my post on the "ethical" Co-Op , I argued that the Co-Op Group management is treating subordinated debt holders in the Co-Op Bank shabbily. Various people questioned this on the grounds that as the Co-Op Bank is a public limited company, the Co-Op Group's investment in its bank is limited to its stake and it is not obliged to provide additional capital: it could simply "walk away" and allow the bank to fail. This comment challenged me to explain why this is not the case: The thing I still don't understand is why you think the Group can't walk away from the bank if it is a subsidiary Ltd company, as seems the case. Is there some legal entanglement beyond the usual corporate pyramidal structure? What is the mechanism through which you think the banks' liabilities can "move up" the limited liability barrier? This is not a question of ethics here, just basic corporate law.   Let's imagine the group withdraws the current offer and sto