Business World

Sunday 25 February 2018

Banks said no to my $50m because of regulation - AIG's Dachille

Douglas Dachille had no takers for the $50m
Douglas Dachille had no takers for the $50m
Sarah McCabe

Sarah McCabe

The chief investment officer at one of the world's biggest insurers was recently turned away by at least two banks when attempting to deposit $50m of client funds - even when he offered a negative interest rate - because of concerns over regulatory compliance.

Banking regulation has gone too far, AIG's Douglas Dachille suggested, speaking at the European Financial Forum which took place in Dublin last Wednesday.

In the wake of the global financial crisis, regulators in Europe and the US ordered banks to hold more capital to absorb potential losses.

"All I wanted to do was put my money in a bank, and I could not do that" he said, referring to client funds he was seeking to invest.

Dachille laid the blame at regulators' doors. "Are you trying to make the job of regulation safe, or the financial system safe?" he said, arguing that regulation is drying up liquidity in the financial system.

Dachille compared the post-recession regulatory regimes that now govern the world's biggest banks to parents' attitudes towards teenage parties.

"Are you going to let them have the party at your house and control the risk yourself, or are you going to forbid it with the result that they have the party somewhere else, out of your control?"

To a round of applause from the audience, Dachille described a financial system in which entities are not permitted to fail - but one where no one can do business with the non-failing entity.

Also speaking at the event, where financial institutions, policy makers, entrepreneurs and finance professionals debated the challenges facing the European and global financial services sector, was State Street's Susan Dargan.

Dargan heads up the financial services company's 2,500-strong Irish operation.

She questioned the cost of enhanced financial services regulation on end users. "What is the cost of regulation to the end investor? How much longer will they have to work in their lifetime?"

Dargan said cost pressures were encouraging State Street to digitise more and more of its processes.

"We now have no human touch on our evaluation system" she said.

Morgan Stanley president Colm Kelleher also spoke at the event, giving an upbeat prognosis for the troubled Chinese economy.

The global economy is not on the verge of a repeat of 2008, Irishman Kelleher maintained. The new year has seen a number of weak economic indicators from the world's second biggest economy, including data showing profits at Chinese industrial firms fell 4.7pc in December from year earlier, the seventh straight monthly decline. "China's like marmite, you either like it or you don't. We are of the view that China is just fine. 6.9pc growth is okay, we believe those numbers broadly," Kelleher said.

The newly installed president of the US investment banking giant claimed markets were undergoing a correction and dismissed suggestions from the likes of George Soros that the world faced a repeat of 2008.

Sunday Indo Business

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