Business

Wednesday May 12, 2010

Financial reforms must continue

Plain Speaking - By Yap Leng Kuen


IN the midst of the furore over the Greek debt crisis, we should not forget financial reforms that were painfully crafted earlier have to still go ahead.

The news lately has focused on the giant aid package for Europe, the market gyrations that had spilled over to the United States and concerns of the US Securities Exchange Commission (SEC).

From bankers going to congressional hearings, the news has shifted to exchange regulators being summoned to the SEC after last Thursday’s “spine-chilling plunge’’ in stock prices that had continued to perplex US regulators.

True, the UK banker bonus tax that was announced in December is under way, with Bank of America expected to pay US$465mil compensation and benefits charge; Citigroup (US$400mil) and Goldman Sachs International (US$600mil).

The top global banks are estimated to pay more than £2bil for bonus payments.

A major proposal for a bank risk tax, put forward last week by US Treasury Secretary Timothy F. Geithner, aims to target financial firms with assets exceeding US$50bil, that use short term and less stable funding to finance risky practices in derivatives and off-balance sheet trading.

The proposed move may be seen as a means to raise US$90bil over 10 years to help recoup the cost of the US$700bil Troubled Asset Relief Programme but it can also serve as a deterrent to risky banking behaviour.

There will be, understandably, a lot of skepticism and opposition to moves of this nature but the regulators should plod on in the interests of consumers at large.

Opinion polls already show deep public concerns in the United States of the “exploding federal budget deficits’’ in the wake of the recession.

It will certainly be a waste to place all these financial reforms in the back burner.

Already, there are some watered-down versions of stronger moves proposed earlier.

A January 2009 proposal known as the Volcker Rule, that aimed to prohibit proprietary trading on the banks’ own accounts and abandon their stakes in hedge funds and private equity funds, remains unimplemented.

Instead, a weaker bill was considered with similar aims but not restricting those activities altogether.

It is certainly difficult to struggle on without support from a wide base but the public cause should be compelling enough for the persistent lawmakers.

  • Senior business editor Yap Leng Kuen salutes those who have the courage to change despite all odds.

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