TECHNOLOGY

On the website today, we pubilshed a story about how swaps could risk having its market structure collapsing if upgrades aren't done to the IT systems.

Which brings to mind an important question - to what extent does new regulation and protocols affect infrastructure?

Or actually, do regulators and politicians take into account the changes, and costs, companies have to absorb if new regulations result in inadequate systems to cater for a new regime?

And to extend the question further, are compliance costs genuinely factored in when lawmakers decide on policy?

US DOLLAR WORRIES

SHIFTING SANDS

Isn't it always the way, you take your summer break and all-hell breaks loose, be it US downgrades, market runs or riots on the streets of London.

However, the roller-coaster still has some way to go. 

Last night, the Franco-German summit failed to convince markets that there was an action plan in place to save the eurozone, indeed, proposals were resurrected to put fear into the stock exchanges with financials particularly taking a hit this morning. 

As I have said before, a Tobin tax cannot work unilaterally. Money moves and in this electronic age money can move very quickly. Despite the individual costs being relatively low, it will add up and traders will shift to more friendly markets - in particular the burgeoning middle east bourses, I suspect will benefit, as will New York. 

From a UK political perspective, this raises an extremely interesting scenario. The Conservatives have, for the most part, successfully clamped down on the European argument in their own party which threatened to overwhelm them with an image of being a one-issue party. Also, despite being portrayed to the contrary, Labour is also riddled with divides over Europe, indeed until the mid-80s it was Labour that was vehemently opposed to European union. 

So the two biggest parties in the UK will find themselves in possible internal civil war with MPs from both the left and the right of the spectrum rising up against a further erosion of financial independence. The Lib-Dems will, inevitably, shift in the sand to the most politically convenient outcome for their party as personal manifestos make perfectly clear around the country, there is no real uniformed Lib-Dem policy, just convenient politicking. 

And yet the question remains of whether there is anything the government can do to stop this tax? The Lisbon Treaty is an enabling document, that is it can continually be changed to suit circumstances. However, it has yet to be fully tested so it will be interesting to see what, if anything, can happen if the UK becomes a blocking point.

The so-called lines-in-the-sand that all UK governments boast about are about to be swept up in the wave of European tax proposals and it could mean that the only solution is the one that all leaders fear, the eventual departure from the EU to the European Free Trade Area by the UK.

Implausible? Possibly. But when you consider that the Tobin tax would essentially tax London which is not in the eurozone to bailout the eurozone and possibly kill-off a key component of the UK economy, the question becomes one of what risks are more important to the politicians?

AVENGING THE DEFICIT?

The UK this week sees the premier of Captain America: The First Avenger.

The good Captain was the original 9 pound weakling Steve Rogers, rejected by the army but given a second chance through the use of a super-serum that German scientist Abraham Erskine developed.

Erskine was killed just after Rogers' transformation by Gestapo agent Heinz Kruger. 

As the debt ceiling deadlock continues with politicians point-scoring and blaming each other as the deadline-day for default looms near, I wonder what would have happened back in 1940 with today's politicians?

Surely the Republicans would have appreciated getting someone out of 4F and into the US Army but would have baulked at the costs, complaining that this action can only happen if cuts were made elsewhere?

Meanwhile, the Democrats, although worried about the ever-increasing debt would have complained that the Republicans were playing petty-politics and that action was needed now to deal with the issue of a lack of super-soldiers. Any vote in favour of the Republicans would not deal with the threat in an instance but create problems six months down the line.

Of course, as events occured   in the story, the Democrats would have won but with the killing of the creator of the Super Serum, the Republicans would go into the next elections complaining that despite the Democrats spending all that money, the country was only left with one super-soldier so how could President Roosevelt justify the costs.

The Tea Party would have questioned how a German scientist got a job ahead of a good old American boy and how the lack of immigration controls and decent security checks allowed the assassin to get into the lab in the first place.


Editor's note: Erskine was originally called Reinstein, why it was changed, I don't know

CRIME DOESN'T PAY

If caught you get fined quite a lot.

Brokers Willis have been fined £6.89m for failures in its anti-bribery and corruption systems and controls which is, to date, the Financial Services Authority's largest fine imposed for this breach.

Coincidentally, the next issue of Financial Risks Today looks at criminal risks in fraud and bribery and what is noticeable about the Willis case is that its failings were exactly like those described by lawyers and consultants we talked to for the article.

In a global world there is an ever-increasing need for due-diligence and to make sure that senior management are informed of all possible risks.

Willis has taken steps to overcome its failures but how much more money could it cost another financial firm before all companies follow good practices and, as far as possible, mitigate the risks from criminal behaviour?

A sigh of relief?

So will the markets breath a sigh of relief on Monday?
It says something that if only eight banks out of 20 failed the 5% benchmark that this should be treated as good news. But, there are still 15 that are in the danger zone and that is with the frantic capitalisation that went on in the first quarter of this year.
We will see on Monday which banks find favour with the markets and despite this breather, I am sure the ratings agencies may take a different view.

BANKING ON A STORM

In around an hour and a half's time, we will see how stable European banks really are with the publication of their stress tests.

It has been kite-flighted that around 10 banks will fail but analysts will probably play spot the debtee with the banks having to disclose their exposures to debt.

It is no wonder that the result are coming out after the UK and European markets have closed because there could be some vicious figures floating around out there.