Banks, EU – Baltic States, Financial Services, Forum, Investments

“The Baltic Course” already wrote about the Eurofi’s think-tank conference in Brussels at the end of September where the Commission’s President J.M.Barroso described the financial sector’s perspectives. The conference attracted numerous experts in financial sector, including those from the US.

See here.

Eurofi conference discussed a series of largely technical debates about the future of European regulation though inherent problems are more of political and economic nature.

Dealing with the roots of the crisis

There is a general belief that at the background of the present financial crisis was a crackdown in the US financial sector. Tough new regulations in Europe expected at the start of 2011 have frightened the big banks in the world.

For example, Goldman Sachs’ chief executive, Lloyd Blankfein, has voiced a clear warning that the bank could shift its operations from Europe if regulatory efforts on the industry become too tough from next year.

Although he backed current moves to toughen bank regulations in efforts to ward off another financial crisis, he warned that the introduction of “mismatched regulation” in Europe would tempt banks to search out the cheapest, least intrusive global jurisdictions in which to operate.

See: Jenkins P., Murphy M. Goldman warns Europe on regulation. –Financial Times, 29 September 2010.

US operations in Europe

European region remains of vital importance to a number of US banks, e.g. Goldman Sachs, which has more than half of the bank’s business now generated outside the US. Goldman carries unusual weight in financial world as the leader and most profitable investment bank.

Mr. Blankfein told the conference, “financial operations can be moved globally and capital can be accessed globally, as well”. His comments, argued Financial Times, were seen as a warning to re-consider bank’s operations in Europe.

However, Sachs’ spokesman said to Financial Times later: “We have no intention of leaving Europe.”

It has to be mentioned that the Basel Committee on Banking Supervision, the global regulatory oversight body, raised concern about the new European rules to toughen banks’ capital and liquidity requirements. The rules could ban certain financial products or activities in times of market stress.

More serious restrictions were introduced in the US financial market as well. The lobbying in the US, has already done a lot to substantially watering down of the Dodd-Frank legislation.

Hence, Goldman, like other big competitors such as JPMorgan Chase and Morgan Stanley, has already been forced to shut down or pare back some of their most profitable trading operations as a result of the US reforms.

Competition is going on

The uniform implementation or financial regulations and enforcement would create a level playing field in Europe. However, in the world numerous gaps exist that could be exploited. Global financial players are ready to compete with “cooperative regions”.

Thus, Goldman Sachs launched recently the biggest advertising campaign in its history in an attempt to improve its reputation with the US public by highlighting its role in job creation and economic growth.

The print and online advertising marks a major departure from Goldman’s traditional stance of focusing its marketing efforts on investors, companies and regulators.

See: Guerrera F., Farrell G. Goldman in ad blitz to repair reputation. – Financial Times, 30 September 2010.

In recent months, the US regulators have alleged Goldman of fraud; politicians attacked the firm in the media on its pay practices, close ties to governments and pervasive presence in capital markets. The bank has since settled the fraud case with the Securities and Exchange Commission, paying a record $ 550 mln fine without admitting any wrongdoing.