Freewheeling regulator or a fixed wheel of economic warfare?
The US has always been used to taking gold, but with London overtaking New York, is the superpower using its regulators to shove the City off its racing line?
Like Victoria Pendleton and her Australian nemesis, the City has been shocked by the regulatory nudge of New York. But it is important that the City and UK politicians remain on the racing line to avoid the risk of relegation.
A few weeks ago I wrote about how regulators failed the banks and warned that the US’ treatment of Barclays was not for the good health of the City.
Little was I to know that the New York regulators should so ably demonstrate this by slamming Standard Chartered this week causing 25 percent of its share value to be wiped.
Now, even StanChart acknowledges that it had breached US law on sanctions against Iran but the argument appears to rest on how much was laundered and whether the allegations follow US law and process.
Politicians awoke to the political possibilities involved with Treasury select committee member John Mann getting an attack in on the great Satan America. Meanwhile Georgie-boy wagged his finger to his counterpart in the States in the manner of a gnat attacking an elephant demanding fairness under law.
Is it economic warfare? Perhaps. It will certainly be used to push New York to greater prominence over London that is being hit by all sides as weaknesses, both politically and corporately are being seized on. However taking advantage of a situation is not the same as causing the situation.
As I have written, there has never been a special relationship with us from the States. Every so often their interests coincide with ours. You would think that politicians of all colours should have realised – from Lend Lease agreements, to the initial refusal to give us any Marshall Plan help, to Suez, BP, the banks, and its studied neutrality over the Falklands – that this was the case.
Indeed, it is the stated aim of the New York State Department for Financial Services (NYSDFS) to enhance New York's status as the world's financial centre.
This may seem odd to you that a regulator is also the chief promoter of the arena it is overseeing but in the intensively political environment that is US regulation, being on the side of those powerful financial institutions is as important as investigating them.
There appears to be no apparent contradiction between the two roles and, to be fair, in many cases over the years, this duality has seemed to work.
However, the NYSDFS superintendent, Ben Lawsky, may have bolted too soon.
The US constitution demands equality under the law, it was this argument that George W Bush successfully used in Florida, and if StanChart decided that they have not been treated equitably, this could turn into a costly suit for the New York regulator.
And there is good reason to suspect that the bank has not been treated equitably, and could be the possible reason why Federal regulators are reportedly angry at this pre-emptive move.
After all, other banks had settled in deals specifically designed to avoid this while certain US banks have seemingly got away with money laundering operations which US regulators were clearly aware of and had warned the bank to desist, and yet no prosecution.
In addition, the news that Goldman Sachs has avoided prosecution for its actions in the sub-prime mortgage scandal will also add fuel to the sense that there is an anti-UK policy in action.
Some commentators seem to think that, if this is a conspiracy to boost New York, wiping out 25 percent of StanChart’s value seems a strange way to go about it but that misses the point.
StanChart is the seventh largest dollar trading clearer in the world, clearing about $195bn of dollar payments a day. Removing its licence would remove it from the New York clearing system Chips, creating a very healthy opening for another player - although the effect on US banks that use StanChart as a custodian or sub-custodian for international trades could be very painful indeed.
If this is a deliberate attack on StanChart and UK banks, the US message is very simple: If you are an insider, you will be OK, if an outsider, the gloves are off.
In addition, with the dollar being the world’s reserve currency, the US can continue to have trillions of debt because of its position in the world but there are maneuverings to change this. The BRIC bloc is already organising cross-market trades in their own currencies and – and this is key – London is setting itself up to be the western world’s clearing house for the renminbi. These are threats to US pre-eminence.
If you look at the three UK banks in the news at the moment, Barclays has a large interest in Africa, HSBC in China and Hong Kong and StanChart has its presence in India and the sub-continent – let alone their operations elsewhere. There therefore has to be a question of whether the fact that these banks have been targeted is pure coincidence?
Is there a deliberate anti-UK, anti-London bias? Possibly. Is the US using the situation to its advantage? Most definitely.
However, it is important that the UK ignore tit-for-tat calls against US banks. The power of London, the importance of London to the UK economy, is partly dependent on our ability to be the world’s trading partner, to have equality under the law.
If a bank has done wrong then the regulators should go after it because of the wrongdoing and not to benefit us. The importance of equality under law is a powerful and attractive tool that our nation has and is something that should not be underestimated.
We benefit by being equitable to all, we benefit when we say it doesn’t matter where you’re from as long as you adhere to the laws of the land then trade away.
Historically, we have been known for the rule of law and openness to trade; it is a strength that we should uphold and promote as one of our greatest trade weapons if a trade war does exist.
Simon Miller is the Editor of Financial Risks Today
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