Legislation could be introduced to ensure banks focus on their deposits as a prerequisite for lending, HSBC Group Chief Executive Michael Geoghegan said on Monday. Back in 1967 I belonged to a credit union. The main theme was that our deposits helped the credit union make loans. I bought a car and my payment was $36 a month. It was a simple idea understood by most high school graduates.

Here we are 42 years later and Michael Geoghegan of HSBC is talking about legislation? Speaking to the issue of deposits Geoghegan said “I think that’s something that the banking industry is understanding more and more now and the dependency on wholesale funding, I suspect, will reduce…” (reference)

One of my partners is studying the secondary market from 2002 through 2007 to see what happened. It seems like a new definition for emerging markets actually meant “developing a subprime market in the U.S.” as opposed to “emerging global markets” which means “we will go to Brazil and Vietnam for new customers and deposits.”

The key was the ability to securitize, and we all know how well that turned out for Lehman Brothers and others by October 2008.

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