US watchdog hits at ‘risky’ London
Cross-posted from the Treasure Islands blog:
That is the headline in the Financial Times this morning - and it is exactly in line with what I have been saying all along, in Treasure Islands and in subsequent stories"
"US lawmakers and regulators have attacked London as a source of financial crises and promised tougher crossborder rules"
As I note in Treasure Islands, this kind of thing has been going on for nearly six decades now, almost unnoticed: it is stuff like this - as well as the UK's network of satellite tax havens feeding business into the City that prompted me to finger the City of London as arguably the world's premier offshore jurisdiction, providing escape routes not just from tax, but from financial regulation, criminal laws, disclosure and all sorts.
Let's make sure that this message doesn't get lost, amid all the yearning in the United States for the Queen and Paddington Bear and (occasionally) Manchester United and all that kind of quaint stuff.
Treasure Islands demonstrates how the City of London has acted for decades as Wall Street's pre-eminent offshore playground, where they could shake off the shackles of financial regulation at home and grow explosively in London's light-touch (or no-touch) regulatory space, and I have done a number of follow-ups on this theme, such as this, just the other day, quoting a financial analyst saying:
"The trail in the MF Global collapse, where it is yet another infinitely leveragable product that once again comes to the fore, once again goes straight to that hub for “questionable activities” – London."
Anyway, in the same FT story we have Gary Gensler, chairman of the Commodity Futures Trading Commission, saying:
"AIG had been hit by its financial products unit in London while Citigroup had been harmed by special purpose investment vehicles set up in the UK capital. “So often it comes right back here, crashing to our shores ... if the American taxpayer bails out JPMorgan, they’d be bailing out that London entity as well,” he told the House financial services committee."
And there is that 'competitive' thing, too.
"One of JPMorgan’s top lobbying goals is preventing the bank’s London derivatives operations being regulated by the US’s CFTC. The bank has argued that it will lose business to the likes of Barclays and Deutsche Bank if it is forced to follow tougher US rules that require it to demand collateral from clients."
Exactly, exactly in line with what I have been saying. And the FT story has some other fine, fine quotes, such as this one:
"Carolyn Maloney, a Democratic representative from New York, said there was a “disturbing pattern in the last few years of London literally becoming the centre of financial trading disasters”"
Well, yes, but it's been going on since 1956, the date I identify as the moment when the Eurodollar market was born.
Solutions? Well, there's a simple approach, as the NY Times notes:
"Both Mr. Frank and Representative Maxine Waters, Democrat of California, highlighted the soured trades made by the London office as further evidence that all trading should be subject to rules being determined in Washington."
Indeed. The FT notes that big foreign banks typically run their London offices as branches of their head office, rather than as capitalised subsidiaries, which would subject them to closer UK supervision (which was never that close, for anyone; more on that, in an interview with the pro-City of London regulator here.) Bloomberg has more, from a few days earlier.
"New York financial firms would move jobs overseas if the U.S. grants the industry’s request to exempt companies’ foreign branches from some Dodd-Frank Act rules, said Gary Gensler, chairman of the Commodity Futures Trading Commission. “If we accept their approach -- that they say, ‘No, don’t cover their London branches’ -- the jobs will go overseas, but the risk will be back here,” Gensler said today in an interview on Bloomberg Television."