Two banking stories made the headlines at the weekend. On Saturday, Mervyn King told the Daily Telegraph that the banks are still taking the piss and that current regulations are still not enough to stop them from bringing the economy down again with their risky practices.
The following day, the Sunday Telegraph reported that HSBC is planning to quit London for Hong Kong, blaming high capital requirements and tough regulation; the very things that Mervyn King reckons we need more of.
By the evening, HSBC had issued a denial, claiming that it regularly reviews its options but had no plans to quit London as yet. Fair enough but the story had done its work. Whoever was behind it, the intention was clearly to send a warning shot to those, like the Bank of England governor, who think the banks are still not regulated enough.
As Sunder Katwala says, we have been here before. Banker sabre-rattling in the face of demands for tougher regulation is now becoming almost a tradition. It is also extremely costly and a hell of a lot of hassle to relocate a bank’s operations. Earlier this month, the chief executive of Standard Chartered, which also does a lot of business in Asia, said that his bank had no plans to move away from London. While he clearly thinks that regulation is a pain in the neck, Peter Sands feels that relocation would be a “big distraction” to the business. In other words, when you shift your headquarters, everyone stops thinking about making money and starts worrying about where they are going to live and who will get the best desks in the new office. This must surely be a consideration for HSBC too.
So we can probably take the HSBC story with a pinch of salt. For now.
That said, regulation in Asia is now much less onerous for banks than the regime in Europe and America. At the end of last year KPMG published its Regulatory Pressure Index which assesses the scale of regulation using nine different measures. It gave Asia a score of 19 compared to Europe and America’s 36. While the report does not predict a flight to Asia, it warns that banking profits will be hit. One of the unnamed shareholders quoted in the Sunday Telegraph reckoned that HSBC would increase its share-price by 30 percent if it moved to Hong Kong. An exaggeration, perhaps, but complying with the regulatory environments in Asia would almost certainly be less costly.
Regulation is, of course, a question of balance. The tipping point will come if the UK regulatory regime becomes so expensive and so much of an administrative headache that it becomes worth relocating staff, uprooting families, finding new schools for children, buying new office space, abandoning the professional networks built up in the City and taking the hit from the drop in performance that accompanies any major organisational change.
As I have said before, I don’t think we are there yet but scaring the banks away would be counterproductive. The government should continue implementing its current regulatory plans but, unless everyone else does it, splitting up the banks might just be a step too far.