Ex-Lehman banker says EU should crack down on big banks

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Instead of addressing fundamental issues like the role of finance, politicians seem stuck in assuaging public anger, argues Sony Kapoor, manager of the international think-tank Re-Define, in an interview with EURACTIV.

Kapoor, who has testified on financial regulation at the European Parliament, says world leaders have so far shown a lack of vision in reshaping the post-crisis financial system, arguing that it will be up to the EU's competition authorities to clean up.

Outside Brussels, national leaders are missing the bigger picture, says Kapoor, though some have come up with "politically palatable" proposals.

The ex-trader says that both UK Prime Minister Gordon Brown's bonus tax and US President Barack Obama's bank levy are the best of a bad bunch of solutions for reimbursing the huge public subsidies that propped up banks.  

"[French President Nicolas] Sarkozy has made some noises about rethinking capitalism, [German Chancellor Angela] Merkel has talked about sustainability, Obama has upped the rhetoric against banks and Brown is belatedly talking about the financial system needing to serve society, but it is difficult to see that any of them have the right vision," the trader notes.

Kapoor praises Sweden for offering a longer term way out, as it will discontinue its bank levy once the government has raised enough revenue to prevent taxpayers from shouldering bank-bailouts.

An injection of competition

Irrespective of the financial crisis, complex Brussels-based regulation discriminates against smaller financial outlets, letting bigger banks run the show, argues Kapoor.

The former trader's first-hand experience at investment bank Lehman Brothers was a glaring example of how big operations become oligopolies, says Kapoor.

These banks are allowed to dominate due to the triple problem of "high barriers to [market] entry, a regulatory landscape that is skewed in favour of bigger banks and the public subsidy that 'too big to fail' institutions enjoy".

Joaquin Almunia, the EU's newly-appointed competition commissioner, has stated his clear intention to undo banking mega-mergers and pay back taxpayers. But according to Kapoor, he will struggle to ward off the powerful financial lobbies that hounded the last Commission.

Kapoor has spoken out in favour of narrow banking, where the financial firms involved have to match the average maturities of their assets and liabilities. But in the face of the banking lobby that confronted the last Commission, he admits that narrow banking would be politically challenging.

"There will be tremendous resistance from Europe's gigantic and politically powerful universal banks against any such move," he predicts.

To read the interview in full, please click here.

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