euro-graphEarlier this month, we asked ‘how can we stop banks being too big to fail’ and you obliged by sending in your suggestions. Over the past couple of weeks, we’ve been putting those comments to policy-makers and individuals working in the financial services sector. The first response comes today from Michel Vermaerke, CEO of the Belgian Financial Sector Federation – the umbrella federation of the Belgian financial sector.

First, we had a suggestion sent in from Michael who argues that “banks need government intervention and guidance. The most important [thing] is to separate retail banks and ‘casino’ investment banks.” Would you agree with Michael?

It’s a debate that needs to be held, but it’s a debate that will benefit from a good analysis of what caused the crisis; is the lack of such a separation a root cause? When you look at a country the size of Belgium, in order to support companies in their export activities one must have credible size and scale, otherwise one becomes dependent on foreign investment banks. If one would simply seperate retail from corporate finance activities, then those banks would not have sufficient size and scale. So, we believe one has to look at the size of individual countries when considering this question.

The next comment comes from Leonardo, who questions the whole concept of banks being ‘too big to fail.’ He argues that the “banking system will never collapse, as the more banks fail, the more monetary wealth and demand for financial services… flow into the remaining – seemingly sound – banks.” How would you respond?

No, I wouldn’t agree with that. The banking system assumes an important systemic role in not only transforming retail deposits into long-term financing for the economy and households, but also by ensuring efficient payment systems, and these functions are critical to an economy. Do not think that governments have intervened because they love bankers, but rather because of the critical role the banking sector plays. In particular, Small and Medium Enterprises (SMEs) depends to a large extent on banking credit for financing. Also, because of the way the banking system works, it’s closely related to the savings of households and citizens. Governments intervened to protect the savings of their citizens and the efficient running of payment systems.

What do YOU think? We’ll be publishing more responses on this topic over the coming days, and we have interviews lined up with policy-makers. Has enough been done to reform the financial sector in Europe? Or do further measures still need to be taken? Let us know your comments in the form below, and we’ll take them to policy-makers and experts for their reactions.

24 comments Post a commentcomment

  1. avatar
    Karel Van Isacker

    Well, bonuses could be a good way to address since I cannot see how exorbitant bonuses schemes can be associated with saving SMEs and households. On the contrary.

  2. avatar
    David Platt

    europe doesn’t have a financial sector it has 27 different countries with their own financial sector. Europe is too diverse and different to be treated as one!

  3. avatar
    Albert Saxén

    Nothing was done in Europe. As in, nothing wrong. It wasthe U.S. that it rippled to .. here, then.

  4. avatar
    David Platt

    How can you say that the euro is falling apart Greece is on the brink, I would hardly describe it as nothing wrong

  5. avatar
    Tom Johnstone

    Sorry Dave, I didn’t know that was a fact. Can we have some more 100% undeniable facts from the depths of UKIP please?

  6. avatar
    Tom Johnstone

    To everything the party you support says. Such as matters of Euro budget spending, the fact you are against Tobin tax (European Union wide or UK set) and how you ‘know’ that the financial sectors across Europe are so vastly different. Most hilariously you are against wind farms and your leader even denies that the UK is in Europe..

  7. avatar
    David Platt

    Yes I am opposed to the Tobin Tax this should be the Government of the country to set its tax rates, when Greece Germany are totally different thats why Greece is now suffering, it needs to leave the Euro and regain control of its country via economy. wind farms have nothing to do with the financial sector. UKIP supports Europe and are good Europeans, but UKIP doesn’t support the EU its undemocratic and our membership has never been approved by the people of the UK.

  8. avatar
    Tom Johnstone

    What is UKIP’s position on Tobin tax as a whole then, as you want to be elected in the UK, surely you cannot be opposed to it on a national scale? Wind Farms were just used to show your lunacy for people not so familiar. I never understood the whole “EU is not democratic” argument, probably because it is rubbish.

  9. avatar
    David Platt

    Tom do you believe the UK should be a sovereign country? Labour and now the conservatives give away to much which I believe are sovereign laws I cannot accept the EU.

  10. avatar
    Christos Mouzeviris

    Well I am with Michael on that…Bring back some regulation to the banks..Unfortunately, human nature is greedy..So we can not remove all regulations even if it would beneficial. We need to have some watchdogs in place to make sure that the banks do not become as powerful ever again and threaten national sovereignty.

    Also, can any of your economist commentators, please explain to me how a country like Denmark seems to have more external debt than Greece, yet it has yet to be attacked by the Markets..and its currency is pegged to the euro..I was looking some statistics about the external debt of all European countries and I found out that Sweden, Switzerland, Germany, Ireland, Denmark, Luxembourg, Norway, Holland and Belgium have far more debt than Greece…

    Ok in the case of Switzerland and Luxembourg I understand that they are also creditors..In other words, they may have as much debt as they like, because others owe them money as well..In other words, they are brokers (or loan creditors or simply as loan sharks as my grand mother would simply put it). Their debt is not exactly theirs as they give and take it from other nations.. Otherwise, if we take in account their tiny population, they should have been bankrupt ages ago..

    So if a country’s population is not to be taken into account (as Denmark is half of the population of Greece), the amount of the external debt is not to be taken into account (otherwise Sweden should be in trouble too) the currency can be manipulated but is also not very relevant (Germany is in the eurozone and is doing well- so is Finland, Denmark and even recently Switzerland have pegged their currencies to the euro), and the production of a country is regulated by either single market or intergovernmental agreements……

    according to all the above what can one think about the current crisis? i am not an economist but can anyone please elaborate? thank you!

  11. avatar
    Leonardo Baggiani

    SIR Michel Vermaerke,

    I repeat my previous comment “banking system will never collapse, as the more banks fail, the more monetary wealth and demand for financial services… flow into the remaining – seemingly sound – banks.”
    * A bank’s bankrupcy does not necessarily involve the whole payment system failure: usually a bank in bad shape is a good prey for helthier ones, which makes the bankrupcy fast an involves a very limited stop in the payment system. What Governments and EU have done is supporting every bank to preserve the existing equilibrium and composition of the market, which is something different from protecting the payment system.
    * A relevant factor which pushes banks to act not so cautiously is that they know they won’t be let fail. What we need can be a new fast procedure to manage bankrupcy, not a safe net which avoids the main stabiliser of capitalism: the fear of bankrupcy.
    * As to savings, Governments offer an assurance on deposits (sometimes unlimited, sometimes limited to a high amount), so it is not the temporary and geographically limited stop to payments (if depositors had not yet moved their account) which is a problem for savers as such.

    … If you think that ALL the banking system shall implode like domino-Supernovae-banks, then you must wonder whether we are all living on a big lie about the stability/sustainability of the whole financial system, but I am sure this catastrophic perspective is not your opinion (nor mine).

    Please, tell me you want the market of banks to preserve its composition for banks are a great bin to absorb public debt bonds, but never say you won’t let that single bank fail to protect the payment system.

  12. avatar
    Georgi Hrisstof

    It is good that the European Union is different as different economic potential and scale of development of economic sectors and possibilities. Onset of the countries in debt and credit cons in one way or another European country will unite and make the European Union ready and strong enough to adjust global challenges ahead of economic destruktsiy and participate successfully establishing a new economic red.Sas security must be found interbank “Yutil” European standard! Certainly need workers to participate in the distribution of profits from their work in the company to be interested to know the profit and loss in solidarity!

  13. avatar
    Joaquim Sérpa

    JUST A JOB … COMPREHENSIVE STRATEGY BALANCED AND ROBUST … can lead the country to the path of progress of individuals, families and businesses …
    Who works, (and produces wealth), it works for you, your family, for your business to your city, for your country ..
    DESERVES AN INCENTIVE … DESERVES PRAISE ONE DESERVES AN AWARD … … and not a tax … and even worse … a more progressive tax paid work more …
    And one of the biggest mistakes of our society … and urgently correct this error that is an injustice … COLOSSAL
    The State should only levy taxes on the consumption … FAIR, Pollution, and Addictions … and all other taxes should be abolished …
    The redistribution of income shall be made only in the state investment … and never in the collection of taxes …
    The unfair taxes on the WORK should be banned immediately … so there is a minimum FISCAL COURT …

  14. avatar
    Dennis Baltzis

    Free economy with a regulated financial sector. The investments must pay back but the countries cannot help the bankers when they face financial problems with money from the taxes when the society is facing austerity measures. Also they must regulate financial products which create wealthiness from nowhere. All the financial products must be regulated without any loopholes.

  15. avatar
    Nico Keppens

    I am surprised that nobody so far referred to splitting saving banks from investment banks. This was done after the 1929 crash and helped to protect the savings of citizens who didn’t want to take the risk of speculation. In order to be able to create bigger banks – which was explained as necessary in a globalised world – this split was abandoned. And that is the reason why ‘banks became too big to be allowed to fail’ and why non speculating citizens as well loose (and not only their money, a lot of them also their job) because of greed of others.
    Apart from this split, and to take back money that was earned on the back of good believing amateuristic speculators, the banks world wide should be obliged to show big money transfers since the crisis began. These fortunes should then be taxed by the country they initially come from. In the case of Greece I think a lot of their problems would be solved.
    If both of these measures could be decided on a world scale (UN? G20?) it would bring a solution closer by, and not by punishing the middle class, let alone the more worse of in our society, but those who are initially the cause of the problem. The ones who according to a study from the University of California in Berkeley, published in Proceedings of the National Academy of Sciences, who have the least moral norms and values …

    • avatar
      Leonardo Baggiani

      I do not agree.
      The first point is a myth given to people to let them think regulators are protecting them. Whether you separate financial activities into separated financial entities or allow for a single multi-operating entity, you cannot hold financial institutions from lending or transferring money for this purpose or that. What’s the difference between a financial group which moves capitals from deposits to trading and a bank lending money to a separated hedge fund? the risk remains the same, if speculation goes bad there still will be problems for depositors to withdrawn own funds. The problem is at a higher level: must a bank be allowed to lend money for speculative purposes? If not so, banks should deny credit to their private clients who decide to buy a Spanish bond too… The old will to “regulate everything” as usual.

      AS to those silly guys who wanted to play speculator so lost their money… They had what they deserved: So as bad banks should fail, stupid guys have to lose their money.

      I cannot understand this paternalistic role of the State.

      “à la guerre comment à la guerre”, if you think you are smarter than Soros you have to pay the consequences. I do not want the EU to treat me like a stupid kid.

  16. avatar

    Dear all,

    We are pleased to see the numerous reactions to this article dealing with different topics.

    The question how the financial sector should be reformed may look simple, but, in our opinion, should focus on the search for a vital and sustainable financial sector.

    This is a matter which consists of several essential elements:

    • Organising efficient payments
    • Proper treatment of depositor versus financing of the economy
    • Clear and stable regulation and supervision and proper calibration
    • Profitability and solvency of the sector
    • The debate on variable remuneration must be held together with European Commissioner Barnier and the supervisory authorities. Any solution must be acceptable at the European level as well as for society
    • Innovation still is a ‘must’, for, after all, future growth will be based on it

    We strongly believe in dialogue with a view to maintaining a balance between:
    – maximum support for the economy
    – sector responsibility in supporting the government
    – conditions for a more robust and viable financial sector

  17. avatar
    Dr. Ray Winter

    Frankly, the current financial system is bust and needs radical surgery for it to become sustainable. All European countries are recklessly printing money, reducing its purchasing power for its populations and then offering it to banks at unrealistic interest rates just so they can bolster their underlying assets and lend it out at usury rates of interest, just so they can make extraordinary profits and allowing to pay themselves unbelievably high bonus’s, whilst they continue to steal money from all savers and shareholders by not paying decent rates of interest and dividends.
    Clearly, the Banks and all EU Governments have been spending the taxpayers money with a complete disregard for the level of tax revenues being generated. The Banks should be immediately banned from paying themselves any bonus’s until a) they pay back the money they have borrowed from the EU Citizens, and b) agree to pay their savers a decent rate of interest and shareholders a decent dividend.
    These actions should be undertaken immediately because Governments will shortly be forced to increase their Bank Interest rates and EU Citizens will have to suffer even higher levels of inflation than is now being experienced caused by the very heavy level of taxes being imposed and excessive costs of fuel.
    In addition, all EU politicians should be forced to take a 50% cut in salary for allowing EU member countries and their Banks to get into such a dangerous and unacceptable situation in the first place.

  18. avatar
    Georgi Hrisstof

    We’ll talk about the periphery to the center to find out!
    When you work for 90/100 euros a month and 40 hours per week or 160 hours per month!
    When a student / default / and do not allow you to enjoy paid leave is fair!
    If the Bank does not give you a loan because of your low income!
    If the Bank does not give you a student loan for education because of its 50 years, and not to 35 maximum and regular student!
    When priniden to borrow from bank intermediaries, such as loan and € 300 € 600 back in 5 months!
    When placed in the impossible and absurd!
    Is it possible there is such a country?
    Could be economics and finance?
    Is it possible to have podannitsi?
    Are you aware that all prices for electricity, water, heating, food, drugs are higher than the average European? …

  19. avatar
    Georgi Hrisstof

    Already begun and upcoming changes in political and financial sector in North Africa and the Middle East will probably yield good financial returns in the European Union! Big money supply will decrease the value and expense of other agricultural production and a desire to equalize market differences, but no be enough.
    European Union must manage its finances carefully and aggressively into other markets, for doing nothing without purpose and unity of their economies so good!
    At the end .. The world knows and trusts, as always, everything started again in Europe as the orchestra conductor expected to announce his early pace .. and ready to follow him.

  20. avatar
    catherine benning

    Big banks are not interested in or beneficial for the average man. Therefore a return to smaller concerns that cater simply for the working lower paid would be a good move. And the emphasis should be on direction and assistance toward a sensible practice. Not, as they do now, take them to the cleaners as the first requirement.

    And what should be looked into and addressed quickly is, why have the Rothschilds decided to link up their British concerns with the French, at the same time as the family buying all the shares in order to eliminate the need to run an open concern? There has to be some kind of fiddle there. Something is in the wind.

    This move doesn’t feel comfortable. Are we in for another scam similar to the one we recently suffered via these secret concerns? Note they never lose in financial crisis. The only losers in any significant way are the public. Too big to fail needs to be addressed with urgency.

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