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From: ' To: "[email protected]" <jeevacationggmail.com> Subject: Fw: Note of Larry Summers banking regulation discussion Date: Thu, 01 Apr 2010 12:24:36 +0000 PI protect Sent from my BlackBerry® wireless device From: "Mandelson MPST" <mpst.mandelsongbis.gsi.gov.uk> Date: Thu, 1 A r 2010 13:22:52 +0100 To: Subject: Note of Larry Summers banking regulation discussion Lord Mandelson met with Larry Summers, David Lipton and Louis Susman this morning. They discussed politics, international economic issues and in particular, Lord Mandelson focused on banking reform. Lord Mandelson (LM) asked about US plans for banking regulation and in particular how this would affect the City through the impact on US banks with substantial presences here. He noted the perceived vacillation of the US's position on implementation of the Volcker reforms and was keen to understand how prescriptive the forthcoming implementation would be. In a candid but slightly guarded reply Larry Summers (LS) responded that: • the financial reform legislation is 85- 90% certain to be passed through Congress this year (others would be more confident but LS said he would always allow for unforeseen events). • the most likely case is that language in the legislation will be nearest to the language used by Senate Banking Committee Chairman Christopher Dodd in the March 15 draft. LS said this would be along the lines of regulators having 6 months to study the appropriateness of restrictions on propriety trading, at which point these restrictions would come into force. On being asked by LM whether this would mean "may" or "shall" for federal agencies 'issuing final regulations implementing' the Volcker rule, LS responded that it's 40% along the "may to shall spectrum"- most likely 'should'. Banks would be restricted to activities they could demonstrate were for a client or customer, but in practice LS only sees this as limiting their activities around the margins. Whilst in name banks would be stopped from engaging in propriety trading, in practice LS saw banks- and was comfortable with- rebranding such activities as services to customers. Therefore, although LS expects it to be less likely to have banks buying up large hedge funds or getting involved in negative equity, he does not see the reforms being implemented in a way that substantially restrains their propriety activities. LM and LS were both clear that this would come down to how the legislation is enforced by the regulators and LS assured LM they are very conscious of getting the right regulators in place. LS said that in practice, he would not envisage big banks being broken up, or prevented from propriety trading. They may split off some activity into a holding company, but it could all still happen under the EFTA00762206 same brand and banner- it just may need to re-jig some internal institutional architecture so that propriety trading would be associated with a client, internal or external. Nick Gordon Private Secretary to Lord Mandelson The Department for Business, Innovation & Skills (BIS) is building a dynamic and competitive UK economy by creating the conditions for business success; promoting innovation, enterprise and science; and giving everyone the skills and opportunities to succeed. To achieve this we will foster world-class universities and promote an open global economy. BIS - Investing in our future The original of this email was scanned for viruses by the Government Secure Intranet virus scanning service supplied by Cable&Wireless in partnership with MessageLabs. (CCTM Certificate Number 2009/09/0052.) On leaving the GSi this email was certified virus free. Communications via the GSi may be automatically logged, monitored and/or recorded for legal purposes. EFTA00762207