It looks the banking news from Britain will continue to be interesting for a while.
The Treasury and Bank of England Governor Mervyn King are lining up in support of the as-yet unreleased report of the UK Independent Commission on banking headed by Sir John Vickers. The commission is expected to recommend that UK financial institutions separate their retail and investment banking arms (sounds like Glass-Steagall II) or, at a minimum, make sure that they are separately capitalized.
According to the Financial Times: “Bankers privately responded angrily to Mr King and considered his keenness to see the sector restructured as potentially destructive to the City of London’s financial competitiveness. Douglas Flint, HSBC chairman, said investors were concerned about “the additional cost of being headquartered in the UK.””
In other words, the banks are warning the government to ease up the regulatory pressure, threatening to decamp for greener pastures if the going gets too tough.
They are playing chicken.
But the banks don’t seem to be playing it too effectively, since, despite their not-so-subtle threats, they are already backing off these threats. The FT reports: “HSBC moved to damp down speculation at the weekend that it was preparing to relocate to Hong Kong because of a mounting regulatory burden in the UK, saying its preference was to remain in London.”
It is not too difficult to see why the game of chicken is not working out well for the banks.
Given recent events in the Middle East and widespread reports of the Chinese authorities’ nervousness about their own pro-democracy movement, Hong Kong is looking a little less appealing as an alternative–hence the backpedaling by HSBC.
Let’s hope HM Treasury and the Old Lady of Threadneedle Street don’t lose their nerve.