June 30, 2009 / 1:45 PM / 9 years ago

UPDATE 1-Breaking up big banks is unrealistic -HSBC

* HSBC, StanChart reject calls for new Glass-Steagall

* Notion that bank failure can be contained is nonsense-HSBC

* Banks need transparent, deferred pay, no price cap

* “When you see golden hellos, your heart sinks” -chairman

(Adds comments from Green interview, StanChart comments)

By Steve Slater

LONDON, June 30 (Reuters) - The global financial industry should not be revamped to try to ensure no bank was too big to fail, HSBC (HSBA.L) Chairman Stephen Green said on Tuesday.

“It is unrealistic to believe that the industry can be reconstructed such that individual institutions are not too big to fail. Quite small and simple banks are too big to fail in a strict sense,” said Green, chairman of Europe’s biggest bank, in a speech at the British Bankers’ Association annual conference.

“The notion that the failure of a bank can be contained by the conventional legal and administrative processes for handling business failures is nonsense.”

Green said “narrow banking” was not the answer to ensure stability. “When you look at the different things that commercial banks do you can’t segregate those out meaningfully in this day of integrated capital markets,” he told Reuters in an interview after.

Peter Sands, chief executive of Standard Chartered (STAN.L), agreed that breaking up the big banks was not the answer.

“There is a case for restricting proprietary risk-taking, but (a new Glass-Steagall Act) is not the way to do it,” Sands said. “It gives an illusion of comfort, it won’t work, and it will be great for regulatory arbitrage.”

The Glass-Steagall Act was a U.S. federal law adopted in 1933 that set up legal barriers between commercial and investment banking in response to the stock market crash.


HSBC’s Green said there was an “emerging regulatory consensus” on what responsible pay for bankers should look like, including deferrals and clawbacks of bonus payments.

However, he said it was not clear the industry appreciated the seriousness of the issue and the market would continue to dictate the overall level of pay.

“I think everybody has recognised that trying to cap the quantum (pay level) and intervene directly in the pricing in the market is difficult to do,” Green told Reuters.

It was correct for banks to ensure transparency and deferral of pay to account for tail risks.

“If you get that right the market will work its medicine appropriately in regard to quantum,” he said.

There have been worrying signs, however, that big incentive packages for bankers were being offered again.

“We have seen recently some signs of golden hellos creeping back in a way that makes your heart sink. It’s as if some people haven’t got the message,” he said.

“Whether that’s going to be pervasive or not, I hope not. Time will tell,” he said.

HSBC has traditionally been less willing to recruit bankers on massive pay deals, but it was not immune from big payouts during the last boom. It paid two of its bankers more than 11 million pounds each last year, both in its leveraged finance arm. [ID:nL2595469]

Green said his bank had paid golden hellos in the past but had not done so recently and “we don’t want to go back”.

For HIGHLIGHTS on the British Bankers’ Association conference click here [ID:nLU649532] (Additional reporting by Kirstin Ridley and Myles Neligan; Editing by Dan Lalor and Simon Jessop)

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