August 29, 2014

Bank fines, if not paid with new voting shares issued, seems societal masochism

Sir, I refer to Gillian Tett’s “Regulatory revenge risks scaring investors away” August 29. In it Tett indicates the possibility that the 10 largest western banks will end up 2014 paying £200bn in bank fines. Let me translate that for you.

In terms of the Basel III US leverage ratio of 5%, that signifies £4.000bn less in lending capacity or, with the European leverage ratio of 3%, £6.666bn less in lending capacity… and that is paid by the economy as a whole… in other words it seems pure societal masochism.

And that does not even consider that if any of these banks run into problems, and is undercapitalized, then tax payers might also end up paying the fines.

That is why I have for quite some time suggested that we should think about forcing the banks to pay their fines with voting shares issued at their current market price. Government could then resell those shares in the market.

That would dilute the value of a bank's current shareholder's investment, but not reduce the assets the fined bank has to manage any unexpected events and to give credit.

Are not bank regulators there to see to our banks are strong and well capitalized? Have we heard them protest these fines?

If regulators can stop banks from paying out dividends in cash... how come they cannot ask the courts to extract shares and not cash from banks?