What most people in this thread are talking about is retail banking. Retail banking in the US lags far behind the EU in terms in technology and security. However, retail banking is only accounts for about 25% of total profits when compared to commercial and investment banking. This is where US banks have consistently beaten the competition. Especially since Brexit which has destabilized London as the financial hub of Europe
america's global presence in commerce is the backbone of american finance's global domination. nearly every country in world has a mcdonalds, starbucks, microsoft, ford and gm and the hundreds of thousands of enterprises ranging from family businesses to faceless behemoths and they all need FX and cash management and funding and commodity hedging and capital raising and securitization and nearly everything else.
which other country extends its commercial presence like this? the germans and the european banks (because german companies fund in euros) come to mind - coba, bnp, credit ag - but (1) german industry is not quite as big as the american industry (2) even the american supermarket-style banks like citi compete aggressively in this space.
This pretty bold statement what is this based on ? As someone who just moved from US to Ireland I def. not getting that impression. I also highly doubt there are banks in EU that can match say Chase on security side.
No idea how it is in Ireland, but in most of the EU, digital transfer between banks and countries is completely seamless. I can transfer money to family members accounts in different banks in the same country in a couple of minutes, and to another country in a day or two. I haven´t used a physical cheque since I moved back from the US.
The transfers thing yes (although it's cultural to an extent). The Clearing House's Real Time Payments network has launched in Jan. but people are not that used to products using it. On security side Chase's security spend dwarfs even largest security firms. If I remember correctly they spend on the order of 4 billion per year on security which among other things allows them to be running world class security team.
In a market where competent candidates start at 300K+ you can't hire a good team unless you a) have resource b)are actually willing to pay for talent. Chase actually has a very competent team. I have doubts there are many (any?) EU banks who's team is on par with Chase.
Yes, well, so the way it is in banking if you don´t have a competent security team, you won´t be in business for very long. And banks in general, everywhere and anywhere, have been in the business of security for a very long time indeed.
I´m sure American banks have very competent teams. So do the Europeans. Behind the scenes they all also tend to collaborate quite a lot in this area at least.
" if you don´t have a competent security team, you won´t be in business for very long" oh that what logic would have you believe and yet it very far from reality.
Traditional banks in Ireland are pretty bad by European standards.
I'm with Ulster Bank ROI (which is actually a subsidiary of Royal Bank of Scotland) and have had a fair share of minor issues with them. Their app also sucks big time.
They've had a major issue 6 months ago where a fair amount of folks were locked out of their accounts (or couldn't access the money, same same ultimately).
Friends at AIB have also had issues, like discrepancy between your online statement and the paper one, or getting their account straight up closed out of the blue.
I can't remember any specific with BOI but they also suck.
If you're in Ireland for long enough, do yourself a favour, get a Revolut / N26 account for your day to day, it's pretty smooth.
I should state that I'm only comparing the largest banks in terms of security. I have bank accounts both in the UK and the US. 2FA has only been recently (3-4 years?) introduced in the US and chip and pin has been in the EU for years now.
It's being more than that but regardless of how long it has being that way does not affect current state of things. Security is among other things a function of the SOC and the level of people running it.
I am curious what evidence do you have to even say the things about retail banking you mentioned here? Just out and out confirmation bias at play here. And the end result is that so many folks here at hacker news were mis-educated because of you.
To be fair I think this article doesn't fairly assess whether this is good or bad.
From my POV as a US citizen that has been living as an expat in different countries for the last few years, US banks globalizing is a net positive. I get convenience and speed with US banks that I get nowhere else -- i.e. the most online traditional bank in the UK is probably NatWest, which sucks because you have to get a physical card reader (like an actual machine that scans your debit card) in order to use the online banking most of the time. There's Monzo which is fully online but it sucks internationally, and adding funds is a pain. In China I had to jump through so many hoops to get an account and there are hundreds of restrictions in place; likely because I'm not a Chinese citizen. This is not a pain point for any immigrants I know in the US as it's fairly easy to move money around.
I'm sure US banks in control is bad at a macroeconomic level, but for the average consumer and at a microeconomic level I think it could bring about a lot of positive changes. Then again my perspective is probably skewed as an American
We have very different experiences of the global banking system, it seems. To me, US banks are archaic, slow, and backward—and the UK has to be in for close second so it isn't a fair comparison at all.
I have lived/banked in New Zealand, Canada and The Netherlands, all of which are delightfully eons ahead of the US banks almost across the board. For example:
- P2P or bill payments in Canada can be made to any email address and received within 60 minutes for free.
- Splitting a bill or requesting payment in Netherlands is trivial, because the banks all allow you to generate a URL and send it to anyone for instant payment.
- Transfers in NZ are realtime, instant, and validated before you send to ensure its the right person. You can also create accounts online with your government login. Touch to pay exists everywhere since at least 2010.
Meanwhile in the US, checks exist and people go crazy when Apple Pay is accepted at a single chain store. I've never touched a check, and I hope I never need to—and the examples of hoops to jump through are likely because you're new! KYC regulations tend to relax over time, and it can be painful at first almost everywhere. The fintech revolution in Europe between N26, Revolut and the dizzying array of others is evidence we don't need, or want, US banks to do anything. It won't help.
Indeed. I had bank accounts in 6 or 7 jurisdictions, and used mobile payments (mPesa, GoJek, etc.) in many more, and the US banks were by far the worst, most primitive, archaic, least convenient, most punitively expensive (in a mean-spirited way) of the bunch. It is no wonder that the (terrible, and expensive) PayPal originated in the US, because the extant alternatives were so primitive (sending checks by mail? seriously?) - other countries had simple, fast, cheap domestic payment systems for ever.
UK and related systems (Ireland, Hong Kong, Channel Islands) second worst.
European continent - what a pleasure by comparison. Everyone has their account number on their website or stationery, and if you want to transfer money, you transfer money.
Of course, I understand that US banking has been catching up to Europe and Africa and Asia. Enjoy.
EDIT to add: As many point out, that's obviously retail. Can't beat US banks in investment banking - Swiss banks and Deutsche and HSBC etc. have been trying.
In my experience UK banks are quite a bit better than German, though that's changing. UK has had almost instant payments for several years. In addition most of the German banks think 5 character passwords are sufficient.
Big difference is that US banks usually charge no fees. Not for a monthly account, not for a credit card, not for a debit card. Probably not even teller services.
And if you go to a US teller, they won’t direct you to an ATM.
From what I’ve seen in France, bank branches are increasingly cashless. Need $5k? Go to the teller and ask them to open a window on your account, and then make 5x transactions at the ATM (with its 1k limits).
I suppose you have your reasons (Global ATM alliance?), but if you’re paying monthly fees on your US chequing accounts, for most people it’s worth shopping around.
leaving the US next month anyways. When I went to shop around, I was told small local banks don't do international wires, I didn't try the other big ones.
My credit union (First Tech) does wires. It goes through another bank, but they allow me to initiate it from my account etc, so there's no practical difference.
I've seen UK banks (to be fair not just banks even wireless service providers) charge for a phone call to their customer service number! (the equivalent of a U.S. toll-free service).
> UK and related systems (Ireland, Hong Kong, Channel Islands) second worst.
How do you even come to this. My experience with UK banks is pretty much second to none. Instant transfers with upfront confirmation with amounts well over 10k. Easy ability to split bills with URL, ability to freeze cards (even outside Monzo, etc), easy instant exchange currencies including overseas (yes a transfer into the UK from another country is instant), icons around my expenses. Account numbers are short and IBAN compatible too. Best of all the typical current account is free.
I second that. Most Europeans who have been exposed to American banks find them years if not decades behind. But investment banks and consumer banks are two different beasts entirely.
> Transfers in NZ are realtime, instant, and validated before you send to ensure its the right person. You can also create accounts online with your government login. Touch to pay exists everywhere since at least 2010.
I know that this is an outright fiction, so I’m leaning towards doubting the rest of your post too. Transfers in NZ are only instant if you’re transferring to somebody in the same bank. I don’t know what identity validation you’re talking about, NZ banks just take an account number for transfers. I’ve never seen a bank use government login in place of AML. Touch pay is not widely adopted at all in NZ, most merchants hate it because of the extra fees, in recent time it’s become somewhat common at larger merchants. Literally everything you said about banking in NZ is either outright false or a major exaggeration.
Last I checked, inter-bank transfers in NZ were hourly now. They're instant with Osko payments in Australia though, which is nice, and they include identity validation too. Paywave/paypass is also almost universal in Australia too, when I went back to NZ a couple of weeks ago it was noticeable how many shops didn't accept contactless payment.
> Last I checked, inter-bank transfers in NZ were hourly now
Depends on the bank, I think most of the big ones do. Some still do overnight. But remember, that’s on each side of the transaction, so a transfer between banks that settle hourly can still take a few hours.
Any bank to any bank transfers in India are literally instant now, via UPI or Unified Payment Interface. A central office gets all incoming requests, & settles the txns. Users & Merchants get id like user@bank, merchants can send a collect request; users can send money, protected through 4-8 char long pin.
As an Australian who travels to NZ reasonably regularly the lack of touch payments, and even credit card acceptance (vs NZ EFTPOS acceptance) is noticeable.
Australia has now launched real time payments though, so I hope NZ catches up before too long...
It seems that while banks themselves do fewer things around p2p payments (which seems to be the over-arching issue you have with American banks), other private companies are greatly improving on this. The banks also banded together and launched their own knock-off, zelle (no fees even across banks, and most banks work with it). Not perfect, but not as bad as others have made it sound. Venmo, the competitor which prompted banks to make zelle, is also alive and kicking. Importantly, it's not owned by the banks, so it's an external competitor which will help drive innovation. I believe that having a non-bank as a market leader will help push American banking ahead better than the NZ banks deciding to implement something out of benevolence. Certainly not as bad as having to get a physical machine to do online banking; my Lord but that's byzantine. I wonder if some one could emulate the hardware device.
The Federal Reserve is finally taking notice too. In addition to modernizing ACH over the past few years (so that payments can be settled on the same business day instead of over 3 business days) it has finally decided to create its own instant payments system called FedNow. Unfortunately that won't be ready until 2023 but Zelle and Venmo should fill the gaps until then.
With Zelle you are at big risk with misdirect funds, proving who got funds, almost no resolution if an issue comes up. I'd be careful with it until things settle down.
I agree, for small transactions. For large transactions (above $10k), US and UK banks are great. Fedwire can move any amount in an hour for $30, and it’s very safe. Try moving $50k through Revolut and they shut you down.
Even though small transactions are the huge majority, most of the money is in large transactions.
Have to agree re: Canada. Our banks are top notch technology wise and customer service. They are also conservative and don't gamble with our economy.
The banks are also spreading globally. I've been able to use different Canadian debit cards in quite a few Caribbean and Mexican cities. More branches are even in the US.
- P2P or bill payments in Canada can be made to any email address and received within 60 minutes for free.
- Splitting a bill or requesting payment in Netherlands is trivial, because the banks all allow you to generate a URL and send it to anyone for instant payment.
You just have to use a bank connected to Zelle and it’s done through the bank’s mobile app. There’s 400+ now apparently so it’s hard to be banked and not be connected somehow. The alphabetic list is on their site.
I don't deny that these other systems may be better than the US's, but you do a disservice to your own argument when you intentionally leave out parts of the US money transfer system that don't help your argument. We all know about debit cards, credit cards, venmo, zelle, the fed wire, &c. No need to pretend that the US is just a bunch of people handing paper checks over to one-another.
I'm not familiar with venmo and zelle, but from what I've heard about them, debit cards in the US sound like they're not much better than credit cards.
Venmo and zelle are two apps that allow instant p2p payments. Venmo was first; zelle is the banking sector's answer (a whole bunch of them got together and agreed to support it). Both are widely compatible; zelle has no transfer fees. That sounds just about as good as anything else I've heard of in NZ, and it has the added advantage of having an external competitor (venmo) pushing the banks. In other words, not everything is under one roof, and I believe this will actually drive innovation in the long run.
I'm not familiar with zelle, but I know venmo (and competitors like Cash app) take a business day to transfer the money into your account. Or they can do it faster for a fee.
I don't doubt it, but in many countries, paper checks already died out a long time ago, and credit cards aren't really catching on for anything other than online purchases abroad, because we already have better solutions for most of the things they do.
As an American I write exactly 4 checks per year. Two for county taxes and two for town taxes. Both have a credit card option I can use, but it's through a third party that charges extra for it.
Why do European vendors have such a hard time accepting credit / debit cards and still insist on cash?
I know of instances where a credit card from Amsterdam, the Netherlands is not even accepted at a shop in the Swabia region of Germany.
I also know of instances where they outright refuse to accept Visa and only deal with Mastercard and such - that too issued in Germany!!. What's the point of a credit card if you cannot travel with it?
Why are cash transactions so much more prevalent in Europe? I've seen the same in Japan but that's entirely a different case.
Personally, I like cash. Better for tips, pocket money and other things. I also like to not leave any transaction history, even if banks are mostly privacy aware.
If you are dependent on social security and the state has the power to look through your finances, you begin to see the advantages again. Because they would rob you of your last 20$.
Cashless paying is convenient and fast, but otherwise isn't really something many people strive for.
Heard about the finance crisis in Greece and how access to their bank accounts became restricted? Another hint.
I think that's more a Germany thing than a European thing. In Sweden cash has almost been completely eliminated from their economy to the point that some retail banks no longer deal in cash.
Credit card networks can vary regionally even under the same brand names (like MC/Visa). They are not ubiquitous. Depending on the network the merchant is using, they may or may not be able to connect to your specific card's issuer.
I'm from the US and I've had my chip based Visa pin debit card declined in France due to network incompatibility that neither side could figure out (at a McDonalds of all places) - the authorization just wasn't making it to the issuer.
Basically the further you get from you issuing bank's region/network, the more likely you are to run into problems, regardless of what country you're in. In the US because payment processing industry is so big, merchants are more likely to accept more networks than in other countries because they're paying more to support it or have negotiated better rates with middle men like FDC or directly with Visa/MC.
I think in Germany most MC is actually run using the Maestro network and merchants get hit with either per transaction fees or high interchange rates for using non-maestro cards (if they even opt-in for that with their acquirer).
Credit cards are expensive to accept and it's possible for charges to be reversed. I admit it's a bit odd to accept one type of credit card and not another, but there are plenty of places in Europe that don't accept credit cards at all. Most places do accept payment with a normal PIN bank card.
In my opinion the US is far behind with regards to retail banking. For example, in the US they are still arguing about real-time payments [1] while we had in years in most countries in Europe. We will probably have cross-country realtime payments with EMPSA [2] before the US has national realtime payments. With Fednow [3] having 2023-2024 as a target.
They are just arguing about the next-gen system that will achieve higher throughput. For consumers of US banks you can already do real-time payments with no fees with Zelle.
> I'm sure US banks in control is bad at a macroeconomic level, but for the average consumer and at a microeconomic level I think it could bring about a lot of positive changes. Then again my perspective is probably skewed as an American
It is also worth comparing the US banks to alternatives. The US is changing, but as a political entity the US still accepts that wealth and earning money are fundamentally good things and that private property is a thing. For example [0].
The US banks are trustworthy like snakes and scorpions, but at least they exist in a regulatory world that is pro-money. It is easy to see why US banks might end up being more effective than the competition. If they tap into a massive opportunity they are allowed to make obscene money. That is also a major driver why if someone wants to succeed, they want to succeed in the US. I bet that pervasive attitude comes through in the banking system too.
> The US banks are trustworthy like snakes and scorpions, but at least they exist in a regulatory world that is pro-money
Erm, US banking regulations have become quite insistent on knowing customers' identifying information, requesting employment details, and reporting many cash transactions to the government. So the environment can't really be said to be pro-money, at least at the pleb level, as the concept of money implies fungibility.
The article is about investment banks. Not retail banks. US investment banks are ahead of the US ones but the retails banks in the US outrageously outdated.
> which sucks because you have to get a physical card reader (like an actual machine that scans your debit card) in order to use the online banking most of the time
Isn't such a device required if you want 2FA and use your phone for e-banking?
With the US system, on the other hand, consumers have more protection precisely because the banking system is insecure. It's easy to get a fradulent charge reversed.
> I get convenience and speed with US banks that I get nowhere else -- i.e. the most online traditional bank in the UK is probably NatWest, which sucks because you have to get a physical card reader (like an actual machine that scans your debit card) in order to use the online banking most of the time.
I had a few UK accounts in the early 2010's, and it was awfully convenient for me that the physical card readers were interchangeable. I can bring around one card reader from any bank, and use it with the debit cards from every other bank.
In Singapore, every bank has their own physical 2FA keypad tokens, and they're not interchangeable. Some banks are slowly moving to mobile apps, but most business bank accounts here still rely on those physical tokens.
Here in Sweden we have BankID that is used by every bank and a multitude of other services as an authentication mechanism. It is an app on your phone, tied to your bank account and phone number where you use a passcode (or can enable FaceID on iOS) to basically sign any kind of transaction related to your tax agency number.
It is really how everywhere should be, I need to pay some bills? Add them to my online banking and when I want to send the orders I just need to send them, open the app and sign. Need to send my tax declaration? Login to the tax agency using the app and sign and validate before sending my form. Do I need to validate a payment done with my credit card that was caught and marked as possibly fraudulent (because my purchasing behaviour changed a little bit from the norm)? No worries, just open the app and validate that you are you.
That aside, we're talking about the cartel that crashed the WORLD economy just 10ish years ago. If that isn't cause for pause I'm not sure what is. There's more to life than convenience.
"In China I had to jump through so many hoops to get an account "
Yah. "hoops" like walking into a bank and walking out with an account and a card in 10 minutes!
"This is not a pain point for any immigrants I know in the US as it's fairly easy to move money around."
Sure. Try to sending 10, 100, 1000 or 10.000 USD within the US and then try the same thing in the EU and compare: costs, speed and ease.
Yes. As far as I know now you can not just walk into a Chinese bank anymore with a tourist visa and just open one. Besides this, if you are not speaking the 90ies or something, I doubt there is a country where it is easier.
Not sure what your definition of "traditional" is, but I don't recognise your description of UK banks at all. I joined Smile bank (Co-op) in 2001/2, and it was even then fully online and I never needed a bank card to manage my account. I've had accounts with several others since (inc. Barclays, Santander) and never needed a card with them either. The new generation like Starling, Monzo, Revolut et al are also incredibly convenient.
Because they can threaten the people in charge of holding them accountable:
> To be clear, the decision of whether to indict a corporation, defer prosecution, or decline altogether is not one that I, or anyone in the Criminal Division, take lightly. We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client.
> In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling.
Lanny Breuer and his then-boss, Eric Holder, both returned to Covington & Burling following their stint at the DOJ. JPMorgan Chase, Bank of America, Morgan Stanley, and UBS are clients of the firm.
Breuer was estimated to take home $4m in compensation in his first year back.
So don't indict the corporation, indict the executives making these decisions. The U.S. loves to issue slap on the wrist fines, but actually going after specific individuals for white collared crime does not ever seem to happen in highly publicized cases.
> a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects
Isn't this what capitalism is all about? If they can't do the job then somebody else will come up on it's place.
The original speech which is quoted is an outline for the use of 'deferred prosecution agreements' office which are effectively corporate plea bargains by the DOJ.
The public policy problem is that if a corporation is indicted, legally they are presumed innocent but the market may not see it that way. Though the company might be eventually fully exonerated in court, they might have driven to bankruptcy by the market. By agreeing to a DPA, the company can treat it as a pseudo-regulatory matter.
This, of course, has critics on both sides. On the one hand some critics feel this has allowed corporations to engage in ongoing criminal behavior without ever really paying the full price. On the other hand, people have criticized the Attorney General's office for using the threat of indictments on flimsy grounds as a means to create a backdoor regulatory regime with no legislative basis.
My biggest issue with it from a public policy standpoint is that we don't have any problem putting the same burden on individual people. A person accused of a crime they didn't commit runs the same exact risk of bankruptcy and financial ruin if they can't make bail (and sometimes, even if they can), despite the same presumption of innocence.
How are we supposed to reconcile giving a corporation, with vastly more resources, special consideration that an individual person does not get?
> Isn't this what capitalism is all about? If they can't do the job then somebody else will come up on it's place.
No, because the remaining corporations will be the monopoly and the government will have enshrined them by prosecuting the competitor which is the opposite result of what the government aims to do.
yes capitalism is described this way and the tendency towards monopoly is why we don't do what capitalism describes. the government helps avoid monopoly so simply won't take a hand in creating it even if it means letting a competitor get away with murder
Yeah, but then they're always lenient with the existing major players and harsher with the smaller players, effectively creating a segment where true capitalistic nature doesn't apply. This is similar to a communist party in a way, where once you're elected, you can't be removed from power until you die under your own accord.
Capitalism is about personal responsibility, corporations are about avoiding (some) personal responsibility.
If certain types of companies commonly failed harshly because of indictments then people would be reluctant to get jobs with those types of companies. So ideally the companies would have to pay more to outweigh the risk.
The primary component in the success of US banks over European banks is that European banks struggle to do business in the US. This is because the jingoist zeal in the US puts up massive hurdles in the way of any foreign bank.
In other words, Americans only buy from Americans. This is why "Twenty-five years ago, European banks charged into the U.S. They bought storied firms like Donaldson, Lufkin & Jenrette and Wasserstein Perella and dangled big paydays for rainmakers" - to convince Americans they were buying from other Americans.
This allows American banks to build up a war chest domestically and keep the fight in Europe and the developing world - while there is no fight in the worlds largest economy. China is doing the same.
I'm really not sure what you're talking about. I cant go open a bank account at HSBC or TD today if I like. And ING was a thing before they I guess got bought out by Capitol One.
Yeah, this is bullshit. I'm Canadian and we have huge protectionist measures around our financial sector but the U.S. doesn't, which has allowed for companies like TD and RBC to become huge players in the U.S. banking industry.
Europe also runs a trade surplus with the U.S. so it's unclear where this macro trend you think exists comes from either.
The topic is investment banking (not retail banking) but both RBC and TD Bank entered the US market by buying US banks. And this is exactly what I said European investment banks tried to do.
>Europe also runs a trade surplus with the U.S. so it's unclear where this macro trend you think exists comes from either.
Financial services are only a small part of the economy compared to e.g. raw materials. But I'm not an economist/accountant so I don't know where it comes out in the wash as regards trade surplus when a UK subsidiary of a US company makes money in the UK.
I'm also not sure having a completely foreign bank in your country (a foreign bank without a local subsidiary) is a good idea frankly. The Icesave crisis would never have happened here.
I read the article but there is no insight into why. Are the US banks better run? Is the regulatory environment post-crisis better in the US? Something else?
One simple explanation is that US corporate management is generally the best in the world. American multinationals tend to outcompete European and Asian multinationals, even within their home markets. These findings are especially true when it comes to IT heavy industries, like finance.
What you'd expect is that any sufficiently globalized industry will ipso facto be dominated by American companies. Unless there's a compelling X factor that counterbalances the management differential. Like Japanese craftmanship in autos. Or the French culture of haute couture in luxury goods. But finance is sufficiently homogenous across cultures, that this probably isn't the case.
The industry has changed a lot in the last 10 years. American companies are always quicker to restructure and adapt to the new environment, where some European banks are just doing now what US banks did 10 years ago.
American people and companies embrace capital markets more, markets are much bigger and deeper. Most Americans invest a big chunk of their savings in 401k and stocks. Compare with Europe where lots more family run or state owned companies.
Close relationship with politicians. US politicians worked closely with Wall Street, many moving back and forth. Compare with Europe where politicians actively hate big banks.
Biggest Hedge funds are all based in the USA. These have been the biggest clients of IBs in recent decades.
Technology. At the end of the day capital markets are all about technology. Main tech vendors are all US based.
I can probably provide a few elements of response.
First regulations and rates. Europe is actually several major jurisdictions:
- Switzerland: they went through a near death experience during the financial crisis, with two huge banks relative to the size of the economy (UBS and Credit Suisse) that would have sunk the country if they failed. Their reaction was understandly to slash and shrink these giants to a less threatening size. UBS and Credit Suisse, once major global players and dominating asset management, are the shadow of what the once were.
- UK: of the major UK banks, two went really bad during the crisis (RBS & HBOS) while the others big banks were mostly healthy. Those two banks were requested to massively deleverage (RBS pretty much exited investment banking). The other UK banks (HSBC, Barclays) were comparably healthier. There was a wish for tough regulations within the EU, however the state of European banks is generally pretty bad (particularly in Germany and Italy) which severely limited how tough european regulations could go before threatening the stability of the country. The UK didn't have that problem and therefore gold-pleated all EU regulations, requiring higher capital ratios, higher coco triggers, strict ring-fencing, massive fines, massive PPI penalties, more severe rules and timing from UK banks. It forced them to retreat from many businesses and to shrink.
- rest of Europe. EU regulators generally are hostile to investment banking and the new regulations make many traditional IB activities uneconomical (in particular trading and financing trading transactions, as well as imposing various degree of ring-fencing of non IB activities). In addition, the EUR zone maintained low rates for a very long time (now going deeply negative), which adds further pressure on the profitability of EUR zone banks.
In the US, regulations have been less aggressive, and the rate environment (high rates) less toxic to banks (the reason why low and negative rates are toxic to banks is that 1) the bank is a net receiver of interest rate, because it has interest paying assets and liabilities, but more assets than liabilities, and 2) because if rates turn negative, it may not be able to pass on negative rates to their depositors (negative rates on current accounts) and find themselves pocketing the difference between their assets and liabilities).
However some European banks have been doing OK, like BNP Paribas or Santander. Their local regulators rather shielded them from tougher regulations. They are challenged nevertheless by the rates environment.
I think the second reason is culture. US banks took losses upfront, slashed bad activities quickly and put the problems of 2008 behind them within a few years, in a typical aggressive, pragmatic american way. The culture in Europe is often to try to live with problems and hope that waiting will make them go away. Even aggressive european players like Barclays, Deutsche Bank or SocGen were very slow to react to the new environment, and were still downsizing and cutting activities long after US banks went back into bullish/expanding mode. In Italy the banks were never really restructured.
> UK: ... It forced them to retreat from many businesses and to shrink.
The UK Banks didn't so much retreat as split their business in to a ring fenced operation (for retail), and a non ring fenced operation. The non ring fenced operations sometimes having their customer facing portion offshore in IOM, Gibralter or Channel Isles subsidiaries.
I believe one or two may have completely retreated.
Stuff like over the counter share trading which used to be available in UK Retail banks, no longer is. One has to deal directly with a stock broker operation (which could just be another company in the same bank group).
I am rather refering to commodities, illiquid rates and currency trading, certain exotic products. Also certain regions where the UK banks weren't big enough, in Asia, Africa or South America.
The ring-fencing is kind of an orthogonal question.
Thanks for the detailed reply! I suspected the US culture+regs as well. The Swiss banks being too large for the country is something I didn't realize. I guess it's a similar problem as Iceland had.
The U.S. investment banks skim the cream of the crop of students from top U.S. universities. It's sad how many of the best and brightest have gone into investment banking, but at the end of the day it does pay better so a lot go that route.
Actually you just described what the world bank did to virtually every African nation in the 60s when they were gaining independence. For most nations the interest on the loans they owe exceeds their GPD, so they will be forever enslaved monetarily. The world bank dictates that for example Ethiopia can not sell processed coffee, else the World Bank will bankrupt them and destroy their economy.
What China are doing now is a lot more honest and up front (though I'm not saying it's good). They go to a country and say "We'll build you these roads/bridges/hydro stations" in exchange for mineral/fishing/whatever rights. So the country gets actual improvements for its citizens, and China gets cheap minerals.
"What they did" and "What happened" are very different. The loan was supposed to foster economic growth, which would have enabled paying back the loan. Which didn't happen for sad reasons.
The coffee part is odd - what's that about? What does the World Bank have to do with coffee?
> The coffee part is odd - what's that about? What does the World Bank have to do with coffee?
The world bank holds many countries to ransom by dictating what they can (or can't do).
Guinea wants to get the internationally accepted price for their Bauxite? World Bank says no, else we'll call in your loan.
Senegal wants to get a fair price for it's resources? Nope, let's put a travel warning on them and decimate their tourism for a year or two.
The list goes on and on and on. I just spent 3 years in Africa at ground level in 35 different countries. The longer you spend there the more you realize.
Think about what you're saying, not only are you saying people hope deals fail (when deals that succeed benefit both parties), but also disparaging other countries as being so inept they can't spot a bad deal.
The issues have been analyzed already:
From, [1],
> First and foremost is the realization that actual asset seizures are a very rare occurrence. [...] Instead, we find those debt renegotiations usually involve a more balanced outcome between lender and borrower, ranging from extensions of loan terms and repayment deadlines to explicit refinancing, or partial or even total debt forgiveness (see Figure 1).
To address the Ski Lankan port issue, [2]:
> Privatizing 70% of Hambantota to CM Ports for $1.1 billion was one way in which foreign exchange could be brought into the country, allowing a balance of payments crisis to be staved off. It was not an asset seizure.
It's not about economics, it's about private capital.
Nations and International Institutions loan out money to small countries which seem reasonable, however when they start to slip on payments they're offered relief in exchange for privatizing their resources and government services so capital around the world can extract rent. See Latin America in the last 30 years, and Africa for the last 50.
You're right though - it's just as insulting to say that these countries can't spot the trap. However some of these deals take literal armies of lawyers and economists to understand, and even when they understand, geo-politics can change around a country a lot more than a "first-world" nation.
Don't forget that it's not only about spotting a bad deal when you see it.
We're not talking about a deal between two individuals. To oppose the deals, you need political power. I.e convincing the populus.
These deals are backed with enormous investments in propoganda to neutralize the masses, and corruption to neutralize the politicians.
Thanks for your response; I was mainly aggravated by OP's original post that's essentially propaganda with no backing evidence so commonly found on Reddit.
> however when they start to slip on payments they're offered relief in exchange for privatizing their resources and government services so capital around the world can extract rent.
Fair enough, but consider the following. China's infrastructure is also allowing Africa to expand and build their own ecosystems in fintech [1]. Furthermore, there is actually discussion about Africa leapfrogging in to green initiatives [2], "The paper uses examples of how China managed to improve initially polluting infrastructure to help Africa leapfrog directly into cleaner solutions."
Sure, I'll conceded the worries about network sovereignty, etc. But if you follow the data coming out of Africa, you'll see progress is really being made. Most people making remarks like OP literally know nothing about Africa.
All such financing under the official umbrella of the Belt and Road Initiative.[1] I'm not so sure that China necessarily wants the capital assets under their direct control because at some point they want their investments (read: loans) to return the predictable cash flows that were promised.
China by size the balance sheet, but those balance sheets are pretty much all in China. What the WSJ article refers to is really investment banking, a market from which Chinese banks are still pretty much non-existent.
But the size of Chinese banks balance sheet is probably more of a problem than anything. They were not forced to apply tough international capital and are now over-leveraged. I understand China tried to forced them to deleverage, then got concerned by the impact on the economy, then made them re-leverage. But an over-leveraged bank is like a loaded spring. You don't want to remain to close to it for to long.
Perhaps in the next few generations we will see similar headlines from other growing superpowers such as India and China.
European and US bankers may chuckle good naturedly when this idea is mentioned, but they forget that the European banking sector was the genesis of most of our current modern-day banking system starting from the 17th century, and yet today they are eclipsed by the US banking sector, aided in no small part by the size and influence of the US economy.
They haven't turned that quickly. Americans were richer than Europeans for centuries.
The American colonies led Great Britain in purchasing power per capita from 1700, and possibly from 1650, until 1774, even counting slaves in the population.[1]
Meanwhile India is only just tackling open defecation and hasn't yet cracked the top 100 (yes, hundred) for income per capita. The next few generations can relax and learn to live with the American empire.
The point I was trying to make was that upstarts can overtake experienced incumbants relatively quickly. Perhaps it's a self-evident point to an HN audience, but the (small) set of bankers that I've spoken to don't seem to believe that anybody else can credibly challenge their dominance.
What if US banking dominance was considered a national priority by the state, and they used some mix of military might, diplomacy, and spycraft to maintain it? It's an interesting possibility, anyway.
I think it will happen ultimately. But between then and now, those countries need to have a stable, robust and predictable legal system. You can't have a strong financial system in a system where the outcome of a legal proceeding is a function of where you are in the communist party structure.
That's a very misleading article. 'Took over the world' isn't exactly going from 42% to 52% of market share...
Also quite funny is "Coming out of the crisis, U.S. banks quickly raised capital and shed risk" and the chart below showing that it's actually the European that cut the assets they are holding to 50%, while the US banks actually increased theirs... Granted, asset != risk, but it's a pretty good proxy here.
I thought this was going to be about J.P. Morgan and the World War I era. The article is not wrong but there are a number of interesting moments over the past hundred years that have shaped the world because of the financial system changes and its influences on politics.
Circa 2008 we were told there was too much power in too few hands. Then we went for eight major banks down to seven. Now those seven hands are expanding their reach?
If they're too big to stop, then certainly they're still to big to fail. The queation is, will the world be willing to do the bail out next time.
