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Bailed out banks complain of political interf -

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Bailed out banks complain of political interference

Peter Ryan reported this story on Tuesday, February 2, 2010 12:21:00

ELEANOR HALL: At the height of the global financial crisis, banks around the world with the notable
exception of Australia, were bailed out to the tune of billions of dollars by governments and of
course, taxpayers.

But now many of those banks are back in the money and are starting to complain about political
interference from their rescuers.

The research was conducted by the Centre for the Study of Financial Innovation and PWC's
(PricewaterhouseCooper) banking partner Mike Codling spoke to our business editor, Peter Ryan.

PETER RYAN: Mike Codling, governments around the world have spent trillions of dollars bailing out
banks so isn't it fair that governments might want to have a say in how banks are run?

MIKE CODLING: Well, there is no doubt that the events of the past couple of years have been very
traumatic to financial markets all over the world and governments and regulators have flak-ked
their share of criticism and there is no doubt that taxpayers at the end of the day have propped up
some banks in other countries throughout the world so they are going to want to see some change to
the way that banks are run hopefully to avoid the same sort of situation happening ever again.

PETER RYAN: Well, you've polled 443 bankers and regulators. They want governments to back off on
regulation. What is their reasoning?

MIKE CODLING: Well the reasoning is quite simply that you can have some unintended consequences of
acting in haste and repenting at leisure and over complex and over burdensome regulation in fact,
damages not only the banks but the economy because it restricts the ability of banks to lend and
makes their lending products more expensive to the average consumer.

PETER RYAN: Are banks worried that their ability to take risks to grow in the recovering world
would be hindered by too much regulation?

MIKE CODLING: I think there is a sense of that. Certainly overseas there is a sense of that because
we have seen some recent announcements from Obama and others to actually restrict the type of
activities that they can undertake.

So there is a very real concern that they are not going to be able to build the business as they
see fit and won't be able to control their own destiny but the challenge for them will be to
improve those relationships with government and the regulators and make sure that they can build
sustainable, strong and profitable businesses for their shareholders.

PETER RYAN: Do these perceived fears add a twist to the moral hazard argument that, for example,
banks have been bailed out, they now want their independence but might ask to be bailed out again
if things turn sour?

MIKE CODLING: Well, I think that is precisely why some of the respondents to the survey put
political interference at the number one risk. They actually concerned of the moral risk that banks
will pretend as if nothing has happened and expect to be bailed out again.

Now clearly and many of our banks in Australia certainly have made it very clear that that is far,
far from the truth but there is those concerns are genuinely around, particularly overseas and
particularly in the US with the investment banks there.

PETER RYAN: Could it be said that banks are happy to have political interference but only on their
own terms?

MIKE CODLING: (Laughs) I think we would all like political interference on our own terms but it is
a real world. They know that they have got to live with the politicians. They know they are in a
highly regulated industry and the cost of their licence, being able to do what they do, is being
regulated for the benefit of all the consumers in the country so they understand that.

PETER RYAN: Is there a middle ground for regulation given that some governments are key
shareholders of banks?

MIKE CODLING: Well that is the other issue. From the government's perspective they actually need
for the share prices of banks to be reasonably strong so they can get out and not lose too much
taxpayers money in so doing.

PETER RYAN: How long will it take for banks to rebuild the trust with governments and the taxpayers
who have rescued them?

MIKE CODLING: Oh look, that is a really hard question but it is certainly not going to be happening
overnight. It is going to take some time. It is going to take a number of years. The banks here are
taking some very sensible and good steps forward in that regard but overseas in particular, banks
are deeply unpopular and it is going to take some time.

ELEANOR HALL: That's PricewaterhouseCooper's banking partner Mike Codling speaking to business
editor Peter Ryan.