Paul Volcker, legendary central banker turned radical reformer of our financial system, has won an important round. The WSJ is now reporting:



This is an important change of course that, while still far from complete, represents a major victory for Volcker - who has been pushing firmly for exactly this.

Thursday's announcement should be assessed on three issues.

Does the president provide a clear statement of why we need these new limits on banks? The administration's narrative on what caused the crisis of 2008-09 has been lame and completely unconvincing so far. The president must take it to the banks directly - tracing the origins of our "too big to fail" vulnerabilities to the excessive deregulation of banks following the Reagan Revolution and emphasizing how much worse these problems became during the Bush years.

Are the proposed limits on the total size (e.g., assets) of banks, or just on part of their operations - such as proprietary trading? The limits need to be on everything that banks do, if they are to be meaningful at all. This is not a moment for technocratic niceties; the banks must be reined in, simply and directly.

Is there a clear strategy for (a) taking concrete workable proposals directly to Congress, and (b) win, lose, or draw in the Senate, running hard with this issue to the midterm elections?

Push every Republican to take a public stand on this question, and you will be amazed at what you hear (if they stick to what they have been saying behind closed doors on Capitol Hill.)

The spin from the White House is that the president and his advisers have been discussing this move for months. The less time spent on such nonsense tomorrow the better. The record speaks for itself, including public statements and private briefings as recently as last week - this is a major policy change and a good idea.

The major question now is - will the White House have the courage of its convictions and really fight the big banks on this issue? If the White House goes into this fight half-hearted or without really understanding (or explaining) the underlying problem of unfettered banks that are too big to fail, they will not win.

http://www.huffingtonpost.com/simon-johnson/paul-volcker-prevails_b_430869.html

Financial News: New Glass-Steagall Will Shake Private Equity Article Email Printer

By Toby Lewis
Of FINANCIAL NEWS

Following President Obama's shock announcement yesterday of plans to strip banks of their private equity interests, Financial News looks at the U.S. and European banks' exposure to the asset class.

The White House issued a statement yesterday, in which it said: "No bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund."

The rule in its present wording could potentially force banks to dispose of both their direct private equity arms and also their substantial fund investments in the asset class.

Should European politicians decide to follow the U.S.'s lead, as some expect, there could be a big impact on the powerful investment houses in the banks based in the region.

Tim Syder, deputy managing partner of U.K. mid-market buyout firm Electra, said a similar move in Europe would have a greater affect at the top end of the private equity market. He said: "There is going to be less private equity competition in the market as capital will be more expensive. Where it is going to have an effect is that banks are not going to be investors in funds. Funds will be harder to raise but I think that would have happened anyway."

The move is likely to further precipitate a decline in banks' holdings in private equity, which made up about 50% of the asset class in the 1980s, according to industry insiders. Bank investments in private equity now make up 9% of fund investments, according to data provider Preqin.

Bruce Ettelson, a partner at law firm Kirkland & Ellis, said: "In a world where there is less capital available for private equity and hedge funds, this will take out another source of funding.

"Banks unloading their stakes into the secondary market could cause a decline in prices and have an adverse affect on the very institutions that government is trying to buttress."

The following data has largely been taken from the banks' websites, the banks themselves and Preqin, where stated.


In Europe
Credit Suisse (CS) has more than $33 billion of private equity managed assets, which are held in operations such as its fund of funds division and a direct arm, DLJ Merchant Banking.

Lloyds Banking Group (LYG) owns Lloyds Development Capital, which manages GBP2 billion of investments, and Bank of Scotland Integrated Finance, which is running an ongoing sale process handled by UBS (UBS). It has deployed more than GBP10 billion since 2000.

Barclays Private Equity is also considering a spin out. Its latest buyout fund raised EUR2.4 billion.

HSBC Private Equity has a large Asian business, HSBC Private Equity Asia, with $3.5 billion under management and a North American business with more than $1 billion, as well as a U.K. division with undisclosed assets.

BNP Paribas (BNP.FR) is the largest investor in the funds of PAI Partners, France's largest buyout firm.

In the U.S.
The direct arms of the U.S. banks are large. Goldman Sachs (GS), across its eight private equity units, has $27.2 billion (EUR19.2 billion) of dry powder ready to deploy in private equity deals, the most of any firm globally. U.S. firm Blackstone Group holds the second-highest amount of un-deployed capital with $25.2 billion.

Citigroup (C) owns highly-regarded direct division Metalmark, which has invested $7.6 billion since 1986, and also through alternative asset arm Citi Alternative Investments, which has long been a large player in private equity.

JP Morgan's (JPM) direct investment arm, One Equity Partners, manages $8 billion of investments and commitments. The bank also has $6.8 billion invested in other private equity funds, according to Preqin.

Bank of America Merrill Lynch's (BAC) private equity arm BAML Capital Partners has more than $8 billion under management. It has $5.1 billion of fund investments, Preqin said.

Morgan Stanley's (MS) private equity arm has invested $6 billion since 1985.

Web site: http://www.efinancialnews.com

http://online.wsj.com/article/BT-CO-20100122-707217.html?mod=WSJ_World_MIDDLEHeadlinesEurope