Friday, 24 April 2015

Should be taken with a handful of salt

So that too-big-to-fail criminal enterprise and byword for corporate irresponsibility, HSBC, has thrown its toys out of the pram. Guess which newspaper paper is practically falling over itself in its rush to wrap the big crybaby in a big fluffy comfort blanket and stuff a consoling dummy into its squalling gob? Yes, it's the fearlessly independent and utterly unbiased Telegraph:

'If Labour wins, HSBC exit could be first of many
'HSBC, Britain's biggest bank, has announced that it may leave the UK following several increases in the bank levy and post-crisis regulatory changes,' wails obedient Telegraph hack Szu Ping Chan.

There, there, never mind:
Any initiative to increase regulation on banks is usually met with an uproar from banks that they will be forced to move their headquarters abroad with catastrophic effects on tax take and business. That politicians and regulators routinely appear to be held hostage to implied threats to leave is testament to the unbalanced information available as to the contribution of the banking sector. But are the threats themselves even credible?

Calculations by the Independent Commission on Banking show that the threats may in fact be empty. More than 50% of taxes from banking come from activities that would be ‘hard to impossible’ to carry out from abroad, such as retail and high street banking to UK customers. Another 27%-36% of the financial service tax contribution comes from “sticky” activities meaning that they could theoretically be moved abroad but only with considerable inconvenience. The activities that could easily be moved abroad only contribute 5% of all financial services tax contributions. Unless the level of regulation is extremely punitive, the banks are likely to find that leaving the UK does not make good business sense. In addition, it is highly likely that, with the emergence of new economic centres on other continents, a significant proportion of “unsticky” activities will relocate anyway. In short, threats that banks would leave the UK if regulations and reforms go ‘too far too fast’ should be taken with a handful of salt.
Banking Vs Democracy

And that's making the huge assumtion that it's good for Britain to to carry on hosting such a dangerously top-heavy financial sector:
But critics of the banks' sheer size - and there are a few of those around, including the governor of the Bank of England and the chairman of the FSA - will be concerned that British banks will remain dangerously large relative to the size of the economy and the financial resources of the British state.
It is worth reminding you that three banks - HSBC, RBS and Barclays - each have gross loans and investments equivalent to annual British economic output, GDP, or more...

...To put that into context, British banks in aggregate are well over six times bigger than American banks, relative to the size of their respective economies.
Robert Peston


john b said...

While your second part is completely reasonable, your first isn't: unlike the other major UK retail banks, whose overseas operations are at most token, HSBC makes the majority of its money overseas (the only reason it became a UK bank is because management were worried the communists would seize its international assets after HK was handed back to China).

Andrew King said...

Fair comment - they only set up in the City in the '90s, so they're clearly more of a flight risk than the other big banks but:
1. They've made similar noises before and haven't followed through, so there are reasons not to immediately take them at face value. Maybe they really will stop playing and take their ball home this time, but they would say that, wouldn't they and, as City fans keep on telling us, there are good geographical reasons for being in London.
2. Although HSBC is, as you pointed out, a bit of a special case, the Telegraph 'first of many' headline would only makes sense if all the big banks were the same and would inevitably HSBC out of the door in some kind of domino effect. But they're not all the same, so it doesn't.
3. We're never going to get away from eye-watering levels of systemic risk and corruption if which ever new government we get after May 7th folds at the first suggestion of blackmail. Losing HSBC might be a risk, but watering down reform and regulation when we've hardly recovered from the effects of the last financial crisis sounds like a far bigger risk to me.