Could UK banks lose 2bn dollars? Not after 2019 anyway...

I imagine most people in the City are dumbfounded that it’s still possible for a rogue trader to run up such a large loss. After all the investment that every bank (that I know of) has shovelled into risk process, controls, systems and people over the last few years.

Is any bank immune?  I’m sure many will be fascinated to hear how this remained undetected so long, and all banks will of course need to understand the root causes so they can ensure their own controls would have prevented this particular circumstance, whatever it turns out to be. Yet these events seem to keep occurring. 

At least the UK government (and taxpayer) is not on the hook for this one.  And nor will we be ever again, once Sir John Vickers’ recommendations have been adopted.  In 2019. Hmmm.

The Independent Banking Commission has set 2019 as the target date for meeting its loss absorbency measures, to coincide with Basel III, having been attentive to the “risks of short-term de-leveraging by banks, especially in order to meet higher equity requirements, and the potential impact on the economy”.  It has set the same date as the target for retail bank ring-fencing.

Yet the costs of ring-fencing, whilst not inconsiderable, could potentially be much easier to bear than the cost of building loss absorbency capital to 17% of RWAs.  And it’s the ring-fencing, not the loss absorbency, that will protect retail banks from this kind of investment bank loss.

Perhaps the ring-fencing date should be brought forward?