Federal Reserve Bank of New York,
33 Liberty Street, New York, NY 10045 – 0001
It is real nice of Bill to let us use his boardroom, and for me a first time within the mighty walls of Fortress Fed, you enter thru the portcullis on Liberty Street, turn left at the cloister, and ascend the medieval elevator to the somber paneled hall where Ben Strong once fends off Montagu Norman and where today your boy stands tall amid the Group of 31.
This sure is an exclusive club and they extend it specially for me, until now it is the Group of 30, meaning bankers and regulators and some guys who trade in and out, membership by invitation, president Paul M Volcker, executive secretary Geoffrey L Bell.
Everyone figures this for one of those groups of ministers and sherpas who gather round at summits out of force of habit, and bring the communiqués with them, like at IMF time we get the G7 and 10 and 24 and 77, and also the G30, which is different, and informal, and does not issue any communiqués at all, unless it feels like it.
Well, a little while back it feels like a communiqué coming on, to lay down club rules on a topic of mutual interest, viz., do banks need regulators and do regulators need banks, and if so do they need the ones they have, and do we need a better answer to this question of a better class of bank, such as those banks whose head honchos are members of the G30.
It seems this first breaks out in the bulge bracket, where Morgan Stanley and the rest scarcely figure they dare trade with themselves, let alone with each other, or with anybody else, for fear some teenage rocket scientists inserts the fuse the wrong way round and lights it, and by the time the regulators come along to dig around the crater, all other life forms are extinct.
So they make this pact as if they are a troup of scouts, they all promise to be pure in thought, word and deed, and if any of the others doubts it he can come along and look, well, put like that, I can see why Morgan Stanley might prefer to discover Discover, whatever else may be wrong with the credit card business, at least it does not depend on scout’s honor.
But in the G30 this sort of idea catches on, with the bankers and the regulators too, they can see what is in it for them, if a global bank is regulated out of Luxembourg how is old Hawkeye there to know about the risk it is exposed to in Medellin, which is how BCCI gets away with it for all those years, that bank sure takes regulatory arbitrage to a fine art.
You can guess what happens next, the G30 figures it must have a study group and who draws the short straw but John Heimann and Bob Alexander, but what happens then is something else, Bob says this group must have diversity and balance, now this guy is the great persuader, in no time at all he persuades me on board and persuades the G30 that its numbers are elastic, which is why they now add up to 31.
We all get our own bits to draft, and mine is the piece on cross-border exposure, which I figure on defining narrowly, I mean, not just the gap between Barings and Singapore, Holey Buckett may be in the next postal district at Intergalactic, but by the time I figure out what he is doing the chances are that he is doing something else, Bob is most sympathetic, he says he knows how I feel.
It is quite a draft by the time we all knit it together, we figure members of our club need to set their own standards and volunteer to meet them, to me this sounds just like self regulation, which is a British speciality until they get laughed out of it, but John says this is different, we are still governed by national laws, as far as they go, which is nothing like as far as we go.
So the next thing is we all agree how we control and manage worldwide risk, and we publish the figures to show it, and get some worldwide CPA to audit them, and publish his report, including the letter that comes with it but the stockholders are not allowed to see it, on account this is apt to confuse them.
How do we do all this, well, easy, we set up a steering committee, and when we meet again at IMF time in Hong Kong with any luck we can agree who steers it, me, I figure this has John’s name written all over it, tho’ I do not tell him this in case he ducks.
Well, anyway, here we all are at the Fed for the launch party, which goes well, tho’ I do say the atmosphere helps, it is what Miss Grybcyncksi in our English class in sixth grade calls a dim religious light, and an aura of blessing that somehow just falls short of being bankable.
I just have time to thank Bill and wolf one of his biscuits and scoot across town to where a corporate client is expecting me, the guy has his eye on a financial publishing outfit which is part of Disney but ceases to be a core holding ever since they drop the plan for reissuing Fantasia with market characters and to the tune of Mahler’s second symphony.
We make a nice deal for him, but at the back of my mind I keep puzzling at these plans of the G31’s, I conclude how there are two lines of people in our business, some are happy to collect their pay checks and have someone tell them what to do, and if this someone is the regulator they can turn their brains off altogether, but I prefer to hire from the other line, even if that means employing Holey Buckett.
In New Zealand, so Bob tells me, all the regulator does is to make the banks come clean, so they can decide who they want to do business with, so maybe this is where the Last National goes next, and maybe not.
I always recall my friend the billbroker when the Brits are last trying to work their ideas out, and he and I are putting on lunch in the Dealmakers’ Arms, I can see him now, waving his glass around and saying: Self regulation, when I am at Eton, my tutor tells us it makes you go blind, much love from
Your G-man son
Herbie is regulated by Christopher Fildes
