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ToL: Alistair Darling warns Barack Obama over banking reforms

From The Sunday Times
TIMES OF LONDON
January 24, 2010

David Smith and Iain Dey

Alistair Darling warns today that President Barack Obama’s proposals for shaking up the banks would not have prevented the crisis and risk undermining the international consensus on reforming the financial system.

In an interview with The Sunday Times, the chancellor made clear that he saw serious shortcomings in the American approach.

“It is always difficult to say ex ante that you would never intervene to save a particular sort of bank,” he said. “In Lehman, for example, there wasn’t a single retail deposit, but the then American administration allowed it to go down and that brought the rest of the system down on the back of it.

“You could end up dividing institutions and making them separate legal entities but that isn’t the point. The point is the connectivity between them in relation to their financial transactions.

“Equally, the large-small thing doesn’t run. Northern Rock was very small in global terms but systemically it was quite important when it got into trouble.”

The chancellor said Britain would continue to work with America on financial reform but that any proposals would have to be “workable and deliverable” and that he would not do anything to “disadvantage London relative to the rest of the world”.

Darling’s big worry is that Obama’s bombshell proposals, based on ideas set out last year by Paul Volcker, former chairman of the Federal Reserve Board, will shatter the consensus within the G20 nations on banking reform.

“If everyone does their own thing it will achieve absolutely nothing. The banks are global — they are quite capable of organising themselves in such a way that if the regime is difficult in one country they will go to another one, and that doesn’t do anyone any good.”

Lord Myners, the City minister, will host a meeting at 11 Downing Street tomorrow to discuss long-term solutions to the “too-big-to-fail” dilemma.

He is gathering senior representatives from each of the G7 nations, along with officials from the International Monetary Fund, the Bank of England and the Financial Services Authority.

Myners convened the meeting to discuss the best way to ensure banks will not need taxpayer bailouts in any future crisis. One plan is to force them to pay into a global insurance fund that could support the sector in times of stress. Another is a tax on all financial transactions, known as a Tobin tax.

Some of Wall Street’s biggest banks are examining ways to duck out of the restrictions. Goldman Sachs and Morgan Stanley are believed to be in talks with the US Treasury about changing their legal status to avoid the new rules.

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6999771.ece