Posted on Thursday, March 17, 2011
Regulatory arbitrage is the latest buzz-phrase. Wall Street’s new parlor game is guessing whether Swiss, British or United States banks will end up with the toughest rules on capital and liquidity. But as reforms play out around the world there’s also the possibility that entire business lines will migrate, raising a whole new set of systemic risks.
Headlines often focus on winners and losers. One big issue is the Basel III rules raising bank capital requirements, especially the extra cushion national regulators may force the biggest banks to hold. Some in Europe, like UBS’s chief executive, Oswald Grübel, worry that the Americans, having dragged their feet in adopting Basel II, will crawl at a snail’s pace this time around, too. Conversely, Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, seems to think it’s in parts of Europe that the political will is questionable.
The lens of bank nationality is used widely. Analysts at JPMorgan contend European investment banks like UBS and Credit Suisse could benefit, over all, compared with their Wall Street counterparts. On that side of the Atlantic, banks will not suffer the constraints of the so-called Volcker Rule that limits the trading activities of United States banks, nor will they have to segregate derivatives and banking activities as American reforms require. Those benefits, JPMorgan reckons, outweigh greater constraints on pay in Europe.
But there are broader issues. Take over-the-counter derivatives. The Dodd-Frank Act is forcing most trading into central clearing houses or exchanges. European rule makers may follow suit. Asian marketplaces like, say, Singapore are still weighing what to do. Even if central clearing becomes the global norm, the regulations attached to clearing houses could dictate where banks and other market players like hedge funds — whether headquartered in Zurich, London or Greenwich — transact their derivatives business.
There’s a danger that the regime that ties up the least amount of traders’ capital is likely to win out, especially if one or more big financial centers impose rules seen as draconian. At least in theory, that in turn could eventually encourage the emergence of a large clearing hub — posing, almost by definition, a major cross-border risk — in a jurisdiction the “reg-arb” worriers aren’t familiar with. Where banks do business can matter more to the system than where their bosses sit.
Impolitic remarks have landed American public radio in trouble. Vivian Schiller, the chief executive of National Public Radio, resigned over comments by an underling. Meanwhile, House Republicans passed a budget that would strip away its funding. NPR may be a drop in the overall budget, but it may be time for a new financial approach.
The sting video that caught NPR’s chief fund-raiser criticizing Tea Party activists would never have led to the ouster of the chief executive of a commercial media organization. But NPR is held to an almost unattainable standard of objectivity and must appeal regularly to a coterie of legislators whose animosity toward it is deep. Nevertheless, its audience for news shows including “Morning Edition” is well over 20 million a week, larger than that of any cable TV program and many hit network shows.
The portion of NPR’s budget that comes from Washington is quite small. But that’s hardly the point. Almost any funding source for public broadcasting — taxpayers, corporate underwriting, listener pledges — comes with strings attached. The irony of the current scandal is that the NPR executive involved was caught saying that the broadcaster would be better off without federal funding.
One way to rework NPR’s finances while keeping its appeal would be to set up an endowment like those at big universities. The operation’s latest annual expense tab was $193 million. Suppose it could be slashed to $150 million by consolidating stations and other steps. Assume a 5 percent return on investment, and a $3 billion fund would pay the way.
That may sound like a lot. But if 20 million listeners, who must now endure lengthy and repetitive pleas for donations, kicked in an average of $100 apiece, that alone would come to $2 billion. Companies and wealthy donors could make up the rest.
This simple math doesn’t address potentially complex measures needed to ensure NPR’s continued independence. But those difficulties are surmountable, too. The trouble is, public radio executives and elected officials alike have been too entrenched in politicized positions to bother working out a real financial solution.
By RICHARD BEALES, JEFFREY GOLDFARB and JAMES LEDBETTER - THE NEW YORK TIMES