A living will is a plan for banks to follow should they go the way of Lehman – “a forcing device for the clarification and simplification of legal structures”, according to Lord Turner, head of the Financial Services Authority (FSA) who Darling is tasking with making the banks get their act together (expect much harrumphing in the Mervyn King household this morning). As the various lawsuits against Lehman Brothers have demonstrated, trying to wind down a bank whose structure is more labyrinthine than a Brillo pad is not easy; the wills would force banks to iron out their tax-avoiding knots, so that it’s easier to prepare them for a crisis.

One look at Barclays’ tax avoidance flowcharts that the Guardian weren’t allowed to publish earlier this year, and you can see the levels of complexity and amount of colour-coding currently deployed in the name of saving a few bob; their indignation at the information being revealed shows that they’re not going to take any new regulations easily. Barclays, for example, runs their money through sun-dappled, tax-absorbing holding companies in the Cayman Islands, Luxembourg, Brazil and so on; the new rules would force them to make these channels a lot clearer, and potentially cut out these Hawaiian-shirted middlemen.

There’s already been a whole heap o’ beef after Lord Turner announced his plans for the wills a fortnight ago – the familiar chorus of Britain’s financial services industry being put at a disadvantage; lawyers saying tax issues weren’t even the FSA’s business; the idea of not allowing banks to generate as much money as possible, which amounts to a moral quandary in the banking world – witness financiers’ brains melting at the thought that capitalism and restrictions on wealth creation might actually have to coexist.

Barclays, to be fair, have actually been one of the few to be (grudgingly) accepting of the plans. “To break it up into living will elements is going to be very difficult,” said Group Finance Director Chris Lucas. “Nevertheless it is something we are going to have to do.”

It’s also worth pointing out, as Margaret Doyle does over at Reuters, that while Turner and Darling’s idea has to fight through domestic opposition from people of all stripes, from lawyers to bankers to the CBI, to implement it effectively on a global scale is going to be very difficult indeed. The idea, as has been mooted, of a global fund to protect against banking failures surely has diplomats waking up in cold sweats, and as Doyle notes, the nationalistic protection that kicks in during a banking crisis will be hard to balance out.

Obama’s speech on Wall St yesterday to mark a year since Lehman acknowledged these international challenges, segueing neatly into some self-promotion: “As the United States is aggressively reforming our regulatory system, we will be working to ensure that the rest of the world does the same”. He too hinted at a living will system: “If taxpayers ever have to step in again to prevent a second Great Depression, the financial industry will have to pay the taxpayer back – every cent”. Nevertheless, compared with the other international regulatory motions floating around – higher capital ratios, rules on compensation – this will undoubtedly be the hardest to persuade banks to sign up to, and the hardest to implement globally.

It looked for a while there like the banking world might be forced into the totally boring world of responsibility and safety, thanks to the high levels of capital now being demanded by regulators. But the banks have waved their collective wands around and come up with a whole new bunch of ways to get around such demands, by packaging up assets into new securities. Sound familiar? Yes, packaged-up assets were exactly what got us into this mess in the first place!

One of the big causes of the financial crisis was the CDO, a gloop of different assets, some of which were potentially toxic, that was put in a pretty dress and bought and sold. The ratings agencies thought they looked hot, so rated them highly despite the underlying dangers. When the mortgages tied to these securities went down the pan, suddenly the securities were worth next to nothing, hence losses, hence banking crisis. To sum it up quickly.

Now, according to the FT this morn, BarCap and Goldman Sachs are making new kinds of packages, and calling them different things like “insurance” and “smart securitisation”. Goldman’s “insurance” is like the asset-insurance provided by Darling to Lloyds et al – in allowing risk to be accounted for by insuring against losses (and buying that insurance off Goldman), banks are therefore protected against losses, and don’t need to have such high capital requirements. The hope here is that the gains stood to be made from having lower capital requirements outdo the amount that banks have to spend on their insurance premiums. Goldman, whose gains from other areas of its balance sheet are eye-poppingly massive, is as good a place as any to have the risk transferred – even if they suffer losses from failing assets that they didn’t take a big enough insurance premium on, they’re unlikely to be big enough to truly dent the financial world, or even Goldman themselves.

Barclays’ “smart securitisation” (nice branding!) is a bit different – in packaging up assets into securities, it effectively reduces the number of assets, and so therefore less capital is required to be shored up against them all. They’re different from the old pesky securities because the risk attached to them is much clearer, and because they’re packages of existing assets, rather than packages of new lending that were much harder to ascertain the riskiness of, as was the case with CDOs.

Even so, to simply streamline assets and then buy them back off yourself in order to reduce your required capital levels, as Barclays are doing, is the kind of financial conjuring that distorts the true levels of risk that a bank is involved with. Barclays are highlighting the “efficiency” of these “less complex” methods, but crucially the underlying assets they’re referring to haven’t changed – they’re still just as risky as before, just grouped together. The capital needs to insure against them haven’t changed, but Barclays has lowered them by creating these “efficiencies”. It’s looking like the next generation of financial innovations is going to be awfully similar to the last lot – and the results could end up being remarkably similar too.

We’ve been following the iShares sale for a while, iShares being the exchange-traded funds bit of BGI. They ended up selling it to CVC for $4.4bn, though they’ve since been courting higher offers from the likes of Vanguard; they can go with someone else other than CVC if they get a better price before June 18, but would have to pay them $175m to say sorry for ditching them. Though Barclays denied it, the sale of iShares is a crucial bit of capital generation that will keep the bank out of the clutches of the Treasury’s asset-insurance scheme.

But if BlackRock buy BGI, they’ll be getting iShares and a whole lot more, while it would thoroughly buffer Barclays against any bad assets on its books. BlackRock would meanwhile become the world’s biggest money manager, with nearly $3tn under management. But Barclays has been keen to stress this morning that this thing is far from signed off – another party, thought to be Bank of New York Mellon, is also in talks about buying BGI.

For Bob Diamond, Barclays’ chairman and president, this is a win-win situation – his bank gets shored up against potential losses, and he doesn’t care that the brand is pegged back with the loss of a prized asset, because he’d go onto the board at BlackRock if the deal goes through. And if he sells all his stock in BGI, he’ll make about $24m. That’s not going to be very good for morale at the bank, where staff saw their final-salary pension schemes disappear last week.

This deal is going to drag on all week and potentially right to the June 16 wire, and we’ll be keeping an eye on it.

Investors have voted with their feet at the sight of Mansour fleeing, and the share price has been dropping all morning. It’s a blow for Barclays, who were hoping that their Arab investors would stick around until June 30, when it was expected they would all take a 30% stake in the bank. It’s also embarrassing considering the anger of shareholders at being left out of a rights issue in favour of Mansour, who has now just thrown the investment back in their faces. Mansour’s investment has been a self-fulfilling prophecy – because he invested, the share price went up as it meant Barclays avoided Darling asset-insurance scheme and was therefore seen as a better bet than other banks (the selling off of assets that buoyed their capital also helped).

So Mansour has made a packet off the deal (just in time to buy Tevez and Barry?), while other winners include Amanda Staveley and Roger Jenkins, the architects of the deal in the first place – Staveley got £40m, and while its not been disclosed how much Jenkins got, suffice to say its probably a lot. Mansour still has a lucrative part of his investment still with the bank, the preference shares that pay out at a rather nice 14%.

But even with their ever-rising share price and the blessing of the FSA, Barclays wasn’t seen as a solid bet in some quarters thanks to the risky assets on its balance sheet; now that Mansour has shown a lack of confidence, the bank is starting to seem even less attractive. The board must be thinking themselves lucky that their AGM has been and gone recently.

At least it looks like it could make more than it expected from the sell-off of its ETF-trading business iShares. It had originally agreed to sell to CVC for $4.4bn – a good price considering some estimate were as low as $3m – but can still shop around for better offers, and one of $5bn has come in from Vanguard.

In a weird sort of way, Barclays’ investors have just got the rights issue they wanted in the first place. Trouble is, if Mansour doesn’t want them, who does?

After Barclays and Citigroup weathered their shareholder meetings without incident, despite their respective lack of shareholder deference and general incompetence, Ken might have thought he was going to get away scot free. And he had moments of glowing support – applause when he said he gave away more than he earned last year (nice way to deflect those early bonus payments); scourge of shareholder meetings Evelyn Y. Davis gave Ken her “full support”; and bozos too scared of change overused their aquatic metaphors – “When the water gets rough, do you take the man who knows the most about the problems and throw him overboard?”, “We really need leadership when the water gets rough”.

But nevertheless, the motion to split the CEO and chairman positions passed, and Ken finds his absolute grip on BoA compromised. Perhaps talking complete jive, like saying the government didn’t have a hand in the Merrill deal despite testifying to the contrary just a couple of months ago, annoyed everyone a touch. Saying that actually buying up the bank was “good value” and good idea in the long run, when it announced $15bn in losses after the deal and helped drag down the BoA share price by 77%, also can’t have gone down well with the shareholders who had their heads out of the sand.

Why would Ken gloss over how Paulson leaned on him to go through with the Merrill deal? Paulson didn’t want the bank to go the way of Lehman, and so gave BoA a $20bn bailout to help absorb it. At the time, Ken didn’t disclose how the government intervened, was forced to testify that they had, and is now going back to his original line that there wasn’t government intervention. The only explanation is that he doesn’t want to look weak in front of his shareholders, but it’s really not that shameful to buckle under the pressure of the US government, and while the takeover wasn’t great for BoA, it probably stopped another panic in the credit markets. It happened, Ken! The sooner you admit that, the sooner we can move on with our lives!

Of course, the shifting of positions could be seen as merely having “symbolic meaning”, as David Weidner suggests in today’s WSJ (he focuses instead on the potential storm of crazy unleashed by Morgan Stanley spinning off their trading division, worth a read). “It’s not particularly significant in terms of how the bank will continue to be run”, says one New York asset manager to Bloomberg. As for the board itself, they expressed “unanimous support” for Lewis continuing in his new roles.

But others are suggesting that it’s the beginning of the end for Ken. “This is an unambiguous vote of no confidence…Whether he chooses to remain as CEO or not, the dominant influence that he had at Bank of America is now a thing of the past”, Campbell Harvey, finance professor at Duke University, told Reuters. “It’s kind of the first step toward the end for Lewis…I just don’t think he’s going to last”, said portfolio manager Ralph Cole. 

I wonder how much John Thain’s front page WSJ fightback on Monday affected things – it drew Lewis closer to the scandal that saw bonus payments made before the deal went through and those massive losses were announced. Of course, Thain wasn’t saying anything particularly new, but its interesting that he timed his refresher course just before the shareholder meeting. He’s got a partial victory at least, and potentially instilled a sufficient amount of doubt in Lewis’s abilities to eventually bring him down. Maybe he just wants him fired so he’s got someone to play chess and drink extra-strength cider in the park with.

“Let me repeat how sorry we are that the exceptional circumstances of the time precluded us offering our shareholders full rights of pre-emption in the capital raising”, said chairman Marcus Agius. He also expressed “sincere regret” for not paying out a dividend to shareholders last quarter, adding that there would be a “conservative” dividend paid at the end of this year. He also announced £11bn of new lending – the alternative would have been a hailstorm of scrutiny from the government, who are expecting Barclays to toe the line and start lending again after they refused Darling’s insurance policy. Chief exec John Varley meanwhile countered Darling’s optimism yesterday by saying we were in for a “deep and prolonged” recession, and to expect some further “thunder and lighting” regarding turmoil in the banking sector.

According to Financial News, the place was packed out with “the traditional flat cap and tweed jacket brigade”, cuing predictable tirades against “Eastern Lands” (yes, if you’re a Barclays shareholders that’s actually how you talk). Now we’re waiting on whether the board has been cast out by the shareholder vote, but if Citigroup’s gang of incompetents can manage to cling on it shouldn’t be too hard for Agius and co.

What was most encouraging about the whole thing was the promise of some sorting out of corporate governance and remuneration – bonuses are to be deferred and subject to “performance hurdles”, and remuneration in general will be more closely tied to the balance sheet. Hopefully they’ll start to atone for their other dubious practices, like rampant tax avoidance and paying non-execs tens of millions…

The firm, which raises rounds of funding to be invested in buy-outs, has been investing less and less of Barclays’ money in the funds over the years – after committing half the total of the first round of funding, it only contributed €650m towards the €2.4bn total raised by the third, most recent round. Now, as they continue with the selloff of their iShares ETF-trading business, it looks like the bank has been chastened somewhat by the events of the last few months. They may have been able to avoid signing up to the government’s asset insurance scheme, but now they’ve got to tread very carefully with their capital ratio, especially as they’re preparing to commit to billions in new consumer lending - funding buyouts is clearly something they could only afford in the boom times.

Meanwhile the tax avoidance beef continues, with a report today by – surprise surprise – the Guardian saying that a whistleblower who queried the bank’s practices was sacked for his peskiness; Barclays are predictably denying any wrongdoing.

Wikileaks has been at the centre of a number of high-profile information-sharing cases, the most recent being the publication of the BNP member address list and the leaked memos on Barclays’ tax avoidance. For the latter, applause – these were documents that laid bare the complexity of Barclays efforts to avoid supporting the country. For the former, boos – whatever you think about the BNP, it’s an invasion of privacy to have your political affiliations, which many people regard as deeply personal, pushed out into the open. The BNP’s members aren’t necessarily racist or xenophobic, and to put them on a list encouraged whitewashing of the issue.

Now with this Australian blacklist, there are similar charges of compromised civil liberties, with blocked sites weirdly including innocent destinations like a dentist’s office and a kennels. The idea of blocking access to certain websites is argued by Wikileaks to be undemocratic – they accused Australia of ”acting like a democratic backwater” with the list. The way Theodor Reppe, the owner of the site, had his home raided was personally damaging – the German authorities painted it as a search for child pornography, as Wikileaks publishes lists of blocked sites that include child pornography links.

Wikileaks says: “once a secret censorship system is established for pornographic content the same system can rapidly expand to cover other material, including political material” – they published a Thailand blacklist that featured sites criticising the Thai royal family.

All quite compelling. But it’s interesting when you learn that the dentist’s office website, that allegedly proves Australia’s internet suppression extends beyond child pornography, had its server hacked by a porn website and was redirecting users to their site, hence the ban from the government. If you take a look down the list of sites blocked to Australia’s people, the URLs alone make for uncomfortable reading, and are compelling evidence for a blacklist. If a dentist’s office that couldn’t keep their security in order appears on it, then it’s a small price for protecting users from child pornography.

Even more morally dubious is Wikileaks actually posting clickable links to all blocked child porn sites on its website – “If the customer is presented with a “STOP!” page, the site is still listed in the filter.” This is surely the most wrongheaded reaction imaginable – when you start to argue for free speech by disseminating child pornography, you know your argument has lost legitimacy.

Depressingly, the Australian blacklist that’s caused all this fuss is, according to one internet filterer, hopelessly out of date, with two thirds of the links dormant and the whole list only representing 0.2% of illegal pornographic material. To hamper efforts to combat this problem with accusations over mild limits on freedom is again wrongheaded.

The raid of Reppe may be overkill, and symptomatic of the apparent “hysteria” gripping Germany over paedophilia, but blacklists can surely be managed by an independent body to ensure there isn’t a creeping infringement upon civil liberties. But it’s another example of paranoia and kneejerk distrust, just as there was with Google’s Street View launch last week. Some “infringements” are useful when you’re trying to find your way round some bizarre street system, as in the case of Street View, and important when trying to combat abuse, in the case of blacklists. When it comes to protecting children, the paranoid howlings of Wikileaks should be kept to a low volume.

Goldman took $10bn in bailout money to make sure their capital was on an even keel, but now it expects to pass the “stress tests” being placed on banks and go back to the usual round of dividend payments, bonuses and champagne breakfasts unmolested by the dread hand of government. The stress tests are simulations of how banks will perform with unemployment levels at 10.3% in 2010, and aim to predict whether the banks are under-capitalised for such conditions. The tests have been criticised by some, most memorably by Wells Fargo chairman Richard Kovacevich who called them “asinine”, suggesting that banks that fail the tests will see their share price drop, and are therefore prey for short-sellers.

Goldman haven’t formally applied to pay back the money, though they and six other banks including Morgan Stanley and Comerica have enough capital to pay back their TARP funds. Banks are getting increasingly annoyed a la Kovacevich over the ongoing changes and restrictions that the government is placing on bailed-out banks, so expect some to get out as soon as the tests are done. But there may well be many more who will sit on their hands and wait until they’re sure they don’t need it, according to insiders talking to Reuters and the Wall Street Journal.

This makes us wonder – if the banks are ready to escape the restrictions, both legal and moral, of operating with taxpayer money, have the regulators had enough of a chance to catch up with them? Are the banks going to go straight back to the derivatives spell-book and start cooking up a cauldron of risky investments all over again? Ongoing market volatility will breed prudence to a certain extent, but there needs to be something in place to keep the banks in check once the government removes its hand.

Goldman are also getting in on the iShares buyout that we looked at last week – the exchange-traded-funds firm is being sold by Barclays, but not so it can accrue capital to avoid the asset-insurance program, oh no, not at all. The FT reported yesterday that Goldman is putting together a bid, along with Vanguard, Bain Capital, Apax and Hellman & Friedman. The fact that iShares is a market leader in a sector that could diversify portfolios in a recession, means that it’s quite an attractive prospect – Barclays might not end up with the bargain payoff you might expect.

The bids end a week on Friday. No doubt Barclays will have wriggled their way out of the insurance scheme by then anyway, given their wizardry for all things barely legal. If you want to see how they got out of paying a lot of taxes, via the medium of bewildering flowcharts, TechCrunch has the leaked memos the Guardian couldn’t publish.

Their new wheeze to avoid this is to flog their exchange-traded funds (ETFs) business in order to get the buffer of capital it needs - ETFs are investment vehicles that behave like stocks, tracking the course of a stock market index, like the Dow Jones, but which don’t actually trade in the stocks held on it.

Their ETF business is called iShares – yes, even fund managers can’t help but stick “i” in front in things to make themselves sound personable and funky in a noughties kinda way. The sale could net up to £5bn, the same amount that the government is expected to charge them for the insurance scheme. Investors must think that Barclays are going to stay independent of the government because of this sale, because Barclays shares jumped after the news broke yesterday.

But there are few reasons why selling off iShares might not be a great idea in the long run for Barclays. Firstly, it’s a growing business that is trading in a still-popular investment strategy – Barclays would miss out on all that future revenue. Secondly, it’s looking like they may not get the price they want for it – amid the recession, large banks have the cash to buy it but are reluctant to use it, while other ETF managers simply don’t have enough money in the first place. The price could get driven down below the amount of capital Barclays need. And while there is potential for growth, right now it’s not happening – ETF assets fell $83bn in the first two months of the year. To sell amid such a slump would get Barclays a bad price for a potentially good company.

There are some, however, who are questioning the ongoing value of ETFs, and of iShares – a source who spoke to IFA Online said iShares had an “unsustainably strong reputation” and that “the perception of growth in this business” was greater than it actually will be. So maybe it’s actually a good time to sell, with ETFs potentially losing profitability over a longer term than expected.

But why sell it at all? Why not just sign up to the insurance program to restore their capital ratio to the 14.5% now being enjoyed by Lloyds? FT’s Alphaville puts in succinctly: “State-interference must be avoided at all costs since that would cost Barclays its lucrative tax avoidance business and also cost Messrs John Varley [chief exec] and Bob Diamond [president] their jobs.” While Gordon Brown wouldn’t necessarily get rid of Varley and Diamond – he explicitly preserved Lloyds’ chief Eric Daniels last week in the name of stability – the clever tax avoidance would certainly come to an abrupt end. Barclays is said to avoid £1bn in tax a year through Jenkins’ loophole dancing – if the government part-owned the bank they could kiss that revenue goodbye. And there’s also the little matter of Diamond and other employees losing their ongoing income from iShares stock options – Diamond made £7.76m from them in 2006 alone, though then again, if they believe that iShares could tank, maybe they stand to make more from selling on their stock to a buyer.

Sources the FT spoke to said that the sale of iShares didn’t have anything to do with trying to avoid the asset-insurance program, but we’re not sure whether to believe that. Would they really be able to get away with another rights issue, effectively handing over yet more equity to the Middle East? The Mail is claiming today that Roger Jenkins has gone back to his sheikh chums to get more capital, as well as to buy iShares and pass it on to a consortium of US-based ETF managers. A source told the FT over the weekend that Jenkins was putting something together as well. Watch this space to see exactly how this deal pans out.