Most want big banks broken up, poll shows

  • By Yalman Onaran Bloomberg News
  • Wednesday, January 23, 2013 8:36pm
  • Business

NEW YORK — The world’s largest banks need to shrink or be broken up in order to regain investors’ confidence after four years of scandals, high-profile trading losses and financial crises, according to a Bloomberg poll.

Almost 60 percent of respondents said they were not confident or “just somewhat confident” that banks are taking prudent risks and conforming to the law, and getting smaller was seen as the top fix in the Bloomberg Global Poll, with 29 percent choosing that remedy. Changing the compensation structure was the No. 2 way to improve trust, with 23 percent.

After injecting $600 billion to rescue failing banks during the worst financial crisis since the Great Depression, governments around the world have tried in the last four years to strengthen banking regulations to prevent a similar outcome. Those efforts have been stymied by conflicting laws and increasing complexity, making the changes harder to implement and reducing their effectiveness.

Solutions suggested so far are “a grab bag of minimalist Band-Aids to patch up the self-inflicted wounds” of the financial system, said Lew Coffey, a poll participant and a fixed-income analyst at Windsor Capital Management in Phoenix. “What’s required to re-establish investor confidence is a series of basic measures to simplify the business, isolate different kinds of risks into different boxes and increase transparency to outsiders.”

Coffey, who’s been managing money for more than 35 years, suggested reinstating the 1933 Glass-Steagall Act, which separated commercial and investment banking, and limiting the size of banks’ balance sheets. Both ideas have been proposed in Congress since 2008 and failed to garner enough backing.

The United States and other countries have considered alternative ways to separate risky activities from the more plain vanilla functions of banks. The 2010 Dodd-Frank Act bans depository institutions from making short-term bets with their own money, while Britain is weighing how to wall off the trading units from commercial lending operations. The European Union is discussing a possible combination of the two measures.

The EU also is considering limiting executive pay at banks. In an effort to tie employees’ compensation to long-term performance, the largest firms have extended how long it takes for stock awards to vest. Many have instituted claw-back provisions to reclaim bonuses from employees whose bets end up losing money, though no bank has yet to invoke such a provision.

“You can de-risk activity more effectively if you limit the incentive portion of compensation, most likely a cap as to percent of salary,” said Vincenzo Galli-Zugaro, managing partner of Seven Pillars Capital Management in London and another poll participant.

The Jan. 17 survey of the 921 investors, analysts and traders who are Bloomberg subscribers also showed that trust in the largest banks has failed to recover four years after the crisis. A majority said they lacked or had little confidence that the biggest institutions are taking prudent risks and conforming to laws.

Half said their opinion of the world’s largest lenders hadn’t changed over the past year, while 61 percent said legal troubles such as the Libor scandal had affected their view.

When big banks break the law, they’re treated more leniently than individuals doing the same, said David Wren- Hardin, a trader at Ronin Capital in New York. Banks caught laundering money for criminal clients were allowed to “get off with a slap on the wrist,” he said.

“The banks could regain my confidence by turning over the people who allowed these decisions, all the way up to the CEO level, to the federal government for criminal prosecution,” Wren-Hardin, also a survey participant, said in an email. Prosecutors shouldn’t shy from charging banks criminally for fear of potentially putting them out of business, he said.

The Bloomberg Global Poll was conducted by Des Moines, Iowa-based Selzer &Co. and has a margin of error of plus or minus 3.2 percentage points.

Several respondents contacted for follow-up questions said their trust in big banks initially eroded with the 2008 crisis. The meltdown showed that the whole financial system was a Ponzi scheme, said Henry Littig, the founder of Henry Littig Global Investments AG in Cologne, Germany.

“This Ponzi scheme has produced a lot of wealth worldwide,” said Littig, author of the 2012 German-language book “Welcome to the World after Capitalism.” “It has to end sometime. The financial system is in the last third of its lifespan.”

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.