HSBC has announced plans to shift its international headquarters from London to Hong Kong, saying that the case for doing so is now “overwhelming”. Key reasons why a bank such as HSBC would consider such a move are the following:
- Intervention by the authorities to bail out its rivals. Despite the irritating, ignorant, and untrue – indeed mendacious – insistence by leading politicians that government intervention saved “the banks”, the reality is that HSBC did not receive recapitalisation funds, and would almost certainly have benefitted had HBOS been liquidated and RBS had to renegotiate with its creditors in the way that would have happened without Brown’s Bad Bailouts. HSBC deeply resented the uncompetitive way its rivals were assisted by the government – even (almost uniquely amongst banks) saying so publicly.
- Excessive (and simultaneously largely pointless) increases in its capital requirements. HSBC did not go bust, even in the worst ever global financial crisis. Probably there was some need to increase liquidity requirements, and perhaps also to change the nature of capital requirements. But the increases in capital imposed upon HSBC have been large and largely symbolic (in a Something Must Be Done sort of way – the impression politicians have wanted to give is that they are increasing capital requirements so far that no bank can ever go bust again, but of course that is totally untrue (the requirements are far, far short of anything that would deliver that) and mercifully untrue – for it would be appallingly destructive if capital requirements were actually that high). It is structural reform and reform of resolutions regimes that are required (including potentially structural reforms that make other banks more like HSBC, in certain respects of its global business structure). Higher capital requirements are largely expensive cosmetic symbols.
- Arbitrary levies and bonus taxes. The bonus taxes imposed on the banks were supposed to encourage them to recapitalise themselves instead of paying out high bonuses off the bank of state guarantees. The bank levies are supposed to be a charge for future bailouts. But HSBC didn’t need a bailout – indeed, the bailout of others harmed HSBC’s business interests – and didn’t need recapitalising. So why were these things imposed on HSBC?
- Ill-directed other regulation. As an inevitable consequence of the bailouts, there has been a huge wave of additional restrictive financial regulation, on top of the very restrictive regulation that existed before the crisis. (The financial sector may well have been poorly supervised, but it was certainly not under-regulated before the Credit Crunch.)
- A climate of hatred. In this country senior bank executives have routinely been subjected to public shamings since the Credit Crunch. It appears acceptable to say things in public about bankers that would be virtually imprisonable offences in our PC state if said about almost anyone else (other than politicians). Why would internationally mobile, highly educated, sophisticated, intelligent and gracious senior bank staff wish to be located on a country where everyone hates you, where there is no distinction between those of you that do well and those that do badly, senior bureaucrats declare that much of what you do is "socially useless", being a senior banker gets eggs thrown at your car, your home has to be protected from attack, and your public reputation lies just better than drugs dealers and just worse than arms dealers?
Of course I believe there are many important regulatory reforms required of the banking sector. But it should be no surprise, given the way our politicians have behaved now for over two years, if successful banks that do not rely upon government handouts choose to be located elsewhere in the world. HSBC may well not be the last to leave.
If policymakers still want to limit the damage, two changes of approach, above all others, are vital:
- Distinguish, in your own minds, in your public statements, and in your policies, between banks that have done badly and you have had to bail out, and banks that did well and you did not need to bail out.
- Where issues are fundamental to the sector – such as weaknesses in resolution frameworks and in implicit deposit insurance schemes that create implicit bailout promises – address those issues in a fundamental way that then allows you subsequently to distinguish, in your minds, statements, and policies, between banks that do well and banks that do badly.