Several interesting articles on International Banking current events/issues in May 21-27 issue of the magazine:
Uneven regulation and protectionist practices are holding back international competition in banking. David Shirreff (interviewed here) explains why banks are considered special, but need to become less so.PASSAU, a small German town near the Austrian border, may seem an unlikely place for a skirmish in the campaign for European banking integration, but that did not stop local German banks last year from complaining loudly that Austrian bankers were stealing their business because of lighter Austrian regulation. Jochen Sanio, head of Germany's financial watchdog, BaFin, duly wrote to his Austrian counterpart, Heinrich Traumüller, demanding that the Austrian rules be tightened. The main issue was the lending threshold above which banks have to produce a lot more detail on the financial health of the borrower: €250,000 in Germany, €750,000 in Austria. The Austrians were attracting clients by advertising their lax rules.
Mr Traumüller agreed this was unfair and put a stop to such advertising, but his bankers continued to pinch the German banks' customers. So in February this year BaFin raised the German threshold to the Austrian level—another small step towards the harmonisation of European banking rules and that distant ideal, a single European market for financial services.
Yet in Passau the playing field is still far from level. For example, Germany and Austria have different rules on the taxation of interest income. Austrian banks simply deduct such income from client accounts and pass it on to the taxman without identifying the individuals concerned, whereas German banks have to tell the tax authorities exactly who was paid what. Austria has held on to its banking secrecy, whereas Germany has abandoned it, says Josef Leutzinger, a director of the Volksbank-Raiffeisenbank in Passau: “We act as fiscal agents for the government.” Even across a single border, where the countries on both sides have a common language and a common currency and are both members of the European Union, the two banking systems are a world apart.
Too important to leave alone
Governments even in the most liberal economies seem to feel that banking systems are too important to be left to themselves. The banks' role in taking deposits from the public and turning them into loans to oil the wheels of the economy is too crucial to allow the possibility of a shock, such as a bank failure or a hiccup in the payment system. But different countries have different views on the use of the banking system as an instrument of government policy, and the lengths to which regulators should go to ensure the strength of their banking system. At one extreme is a state-owned banking system in which banks are extensions of government and will never be allowed to go bust; at the other is a lightly regulated system of private banks without an explicit safety-net in which bank failures are common.
Over the past 20 years, the role of governments in banking systems has tended to diminish, leaving room for doubt over whether banks might be allowed to fail. But over the same period some banks have grown so complex, and so active globally, that their failure would inflict severe damage on one or more national economies. These global banks are deemed to have become “too big to fail”....>
http://www.economist.com/displaystory.cfm?story_id=3959367
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