European Bank Union a “Beautiful Ship” But Not Ready For Sailing!

The International Monetary Fund’s head has requested that the process of creating a European banking union be sped up, after several months of deliberation.

Addressing an audience at a recent Paris conference, the International Monetary Fund’s current chief said the European banking union area was a “beautiful ship”, but that it was quite unprepared for the rough waters ahead of it.

“We very much think of the euro area as a beautiful ship that has been built, nurtured… for the soft seas, but which is not yet completely finished for the rough ones. A lot has been done in relation to banking union. If I have a message today, it is that that particular part of the ship needs to be finished, needs to be completed and speed is of the essence,” CEO Christine Lagarde said.

The formulation of a European banking union has been put into motion to try and avoid the global banking crisis from happening again.

The union could possible involve a single banking supervisor, with a pool of national funds kept to save banks at risk. The union will be a governing authority as suggested by the European Commission, which detailed plans for a new body to be accountable for handling Eurozone banks in financial difficulty.

The new governing body would have the power to restructure or entirely shut down any banks in difficulty, regardless of the authorities’ decisions in the bank’s country of origin. It would be billed as a Single Resolution Mechanism, with dedicated fund to save banks created from levies on existing financial institutions.

The proposals have caused some tension, with the possibility of taxpayer money from individual European Union states necessary to keep the €55 billion fund at an optimum level. This has obviously inspired some concern from individual states about the impact on their citizens.

Another objection is that current European treaties may have to be revised to reflect the new financial governing body. Germany has expressed some reservations in this department, stating that these changes may in fact take months, perhaps years, to agree upon and confirm.

What Do Bank CEO’s Really Do?

While most people know that a Chief Executive Officer is the head of a company, less people know the individual responsibilities and the day-to-day responsibilities of a CEO.
Also known as an Managing Director (MD), CEO responsibilities vary from company to company but they are usually the head of the organisation’s board of directors depending on corporate structure.

How far the CEO extends his power on a daily basis varies on the company but also on the particular managing style of the individual. Typically though, CEO’s choose to delegate many of their responsibilities and orchestrate the company’s activities rather than taking an active involvement of operations. The CEO is the leader of a corporation, as an experienced board member and usually has vast industry experience. As well as consulting with the board, they have the final say on important issues in the company. They can use their power to influence other board members and shape the corporation according to their vision of what should be done for the best.

When the 2008 financial crisis occurred, it was due in part to the role of Fred Goodwin as CEO of RBS. Goodwin pushed through a controversial takeover of Dutch bank ABN AMRO in order to become the first ‘super bank’ – six months later and the bank needed a government bail out to prevent it from collapsing. This essentially crippled the UK economy and five years later the new CEO Robert Hester has managed to place RBS in a position where it can consider selling its publicly owned shares.

Across the Irish Sea, the Anglo Irish Bank was nationalised and the government brought in financial expert Mike Aynsley was brought in as CEO of the newly named Irish Bank Resolution Corporation Limited. Aynsley was successful in reducing the corporation’s asset portfolios from €115 billion in 2008 to around €14 billion. The three key skills of a CEO in banking found in setting the overall vision and strategy of the company and communicating it to stakeholders; finding best talent; and ensuring sure there is always enough money in reserve, the rest is delegated.

Fundamentally, however, CEO’s are responsible for all operations in the corporation and even if something happens which they had no part in, they should have had measures in place to prevent such occurrences. A CEO is still answerable to the corporation’s stakeholders who essentially own the business and can at any time take action to remove or replace the CEO and his board of directors.

Fresh Hope For UK Banks

Fresh hope for banks in the UK has come in the form of Mark Carney. As the new Bank of England Governor he has no previous ties to the UK, he is therefore seen as someone who doesn’t need to work for political favour. He will come into his new position at a time when the general public is desperate for original financial ideas to get the economy back on track; Mark Carney has his work cut out for him.

Carney will be given a five year term to turn the economy around and lead UK banks into a successful financial era. His current position as the Governor of the Bank of Canada has hopefully prepared him well for a job that will make him the third most powerful man in Britain.

Rachel Lomax, the Bank of England’s previous deputy governor spoke of how Carney had all the right incentives to do well within the job. She said, ““He doesn’t want to be reappointed. He has no personal ambitions in the UK. He has the opportunity to be brutally honest”. The tasks that he will be faced with upon starting his new job will be supervising all UK banks as well as setting interest rates. He will have the power to punish savers by making sure interest rates stay low if he believes the economy is weak. Mark Carney will also have the ability to make the process of getting a business loan much more difficult.
The decision to appoint Carney to the position within the Bank of England was made by Chancellor George Osborne. The Chancellor is said to be extremely positive about Carney’s future role within British banking and is expecting him to have a decent level of success. In order to kick start proceedings, the Chancellor has already launched a review into whether it is viable to break up the Royal Bank of Scotland before Carney takes his post. He is currently toying with the idea of leaving the Royal Bank of Scotland alone and simply reduce the leverage ratio demands and is expected to make a decision soon.

Eurozone Bailout

Finance ministers within the Eurozone have agreed on guidelines for a bailout fund that will help struggling banks get back to good stead. The fund, which is being called the European Stability Mechanism, consists of £437 billion ($660 billion) and will be an efficient way to stabilise failing financial institutions. Each bank that is applicable will be able to receive up to 60 billion euros as of the end of 2014.

Although the guidelines haven’t yet reached a stage of definitive agreement, it is believed it will be agreed upon and legalised within the next few days. It will first be subject to a new Bank Resolution and Recovery Directive which has to be agreed upon by every finance minister within the EU and is also inclusive of non-eurozone countries under that category. A similar project that was put into effect previously had the power to bail out national governments but not their actual banks. This new and improved ESM will take things one step further.

Many financial experts have suggested that this is exactly what the failing economy needs in order to get going again. They point out that the vicious cycle of the recession is because there is not sufficient funding for the banks to stop adding to the government deficit. One optimistic banker stated that this could, “lead to a rescue of the whole country”. In countries around the globe, the government is currently footing the bill for the collapse of the banks and a bailout could be exactly what is needed to see a boost in performance. It is highly expected that the new proposed bailout will end the problematic relationship that exists between banks and governments throughout Europe.

Although the ESM is a much welcomed concept by many, a selection of countries, with Germany at the helm, are keen to limit the amount of help that the new measures will provide. Germany currently has one of the strongest economies in Europe and will therefore be seeking less help than many other nations. However all banks with a capital ratio below 4.5% would have to get financial help from their own governments before they would become eligible for help from the ESM. Click here to read more about this story.

The G8 and Tax Evasion

World leaders who participated in the G8 summit have decided upon new measures that will impose heavier sanctions on people who are evading tax. The new sanctions will also target those who launder money. In a revolutionary move, the participating governments have also promised to give each other automatic access to a massive amount of information relating to the tax affairs of their residents. Also, any business that is suspected of being a shell company, which are companies that are used to invest money anonymously, to immediately identify the business owners.

Leaders at the G8 summit were keen to express their disdain towards those who evade paying their taxes and they promised to “fight the scourge of tax evasion”. Although the promises made by the leaders are in line with many who have been pushing for change, many have already been quick to comment that the agenda of the summit may be a bit too ambitious. Every leader at the conference was in agreement that all multinational companies should have to tell the tax authorities about the taxes they are paying. There was also suggestion of a change in the law for those companies who move their money between countries for various reasons. Several big businesses, such as Apple, Google, Amazon and Starbucks, have all been accused of tax evasion in recent months with varying degrees of severity. By making information more freely available, this will be a much more difficult task for companies to get away with.

As well as the new tax laws, the summit also saw the creation of free trade negotiations between the EU and the US. These new negotiations were labelled as “the biggest bilateral trade agreement in history” by David Cameron, the UK Prime Minister. Mr Cameron also said that, “This international tax tool is going to be a real feature of ensuring that we get a proper tax payment and proper tax justice in our world…those who want to evade taxes will have nowhere to hide”.