Tags: Vinella | Banks | libor | rate

Bank Expert Vinella to Moneynews: Big Banks Don’t Need to Be Broken Up

Wednesday, 22 Aug 2012 08:11 AM

By Forrest Jones and Kathleen Walter

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Big banks don't need to be split up and calls to restore Depression-era legislation to do just that will make U.S. financial institutions less competitive in the global arena, said Peter Vinella, director of the Berkley Research Group.

Since the Lehman Brothers collapse in 2008 as well as other black eyes on the sector, including JPMorgan's recent multibillion dollar trading loss, calls to resurrect the Glass-Steagall Act have risen.

Passed in the Great Depression and repealed under the Clinton administration, Glass-Steagall prohibits financial institutions from running investment banks and commercial banks under one roof.

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Supporters say a return to the law would lower the systemic risk that big banks allegedly impose on the financial system and would actually increase shareholder value.

“I’m not a big fan of that. First of all this is now a global financial system and putting regulations in place that only affect U.S. banks will not necessarily improve the overall safety of financial systems," Vinella told Newsmax.TV in an exclusive interview.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

"The United States banks have to be competitive with the foreign banks. I think you know, the days of Glass-Steagall are behind us and I think the thing to do now is look at what happened in 2007-2008 time frame and rationally come up with some regulatory framework that makes sense," Vinella added.

"But I think trying to go back to the idea that you can separate investment from commercial banking, I think those days are gone.”

Meanwhile, banks have come under scrutiny recently upon revelations that some manipulated the London Interbank Offered Rate (Libor), which is set in the United Kingdom and determines interest rates worldwide.

Some banks, such as Barclays, have been accused of manipulating the rate to their advantage, and while the scandal may be far-reaching, the problem lies mainly outside of the United States, according to Vinella.

Barclays in the United Kingdom has paid $453 million in fines for its involvement, for example.

"Libor, it’s been estimated to be connected to $350 trillion worth of derivatives and other financial products such as loans. So it’s going to be extremely widespread in terms of its impact," Vinella said.

"Libor by its very name, which is the London Interbank Offered Rate, is really set in England. It’s overseen by the British Bankers’ Association, which is a British trade group so it’s not necessarily within the jurisdiction of the Fed or even U.S. government agencies to regulate Libor," Vinella said.

Some have suggested that current Treasury Secretary Tim Geithner, who was head of the Federal Reserve Bank of New York at the time of the alleged rate manipulation, should have probed the issue more.

"The big issue here, again, is a lack of transparency," Vinella said.

"Some minimal industry, self-regulation would help a great deal. But, again, I’m not a big fan of just regulations for regulation’s sake."

Getting rid of the rate, however, isn't a viable option.

"I think it would be impossible to do that. It’s so ingrained now into the overall financial system. Again $350 trillion of obligations and other financial products would have to be either re-written or reset to some other index," Vinella said.

"I think the issue here now is for the regulators in England and the United States to coordinate and come up with some way that can re-instill confidence that Libor is a meaningful and independent rate.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

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