UK Leads, USA Follows: Changing Banking for Good
Posted by Larry Doyle on June 19, 2013 8:10 AM |
At one point in time, the USA may have been viewed as the preeminent world leader on major financial issues.
While many arrogant bankers, regulators, and political leaders here in the USA might care to continue to believe they hold that leadership position, I think most who might read this blog know that those days have passed.
Dodd-Frank reformed our financial system? Really? Then why is it that bankers from Citigroup are virtually writing entire new legislation under the heretofore now designated Fraud-Dank umbrella?
If we care for a more honest assessment of the comparably incestuous, crony, corruptible dynamic at play within these parts, let’s redirect our focus across the pond.
The Commission was established in July 2012, in the wake of the LIBOR scandal, to conduct an inquiry into professional standards and culture in the UK banking sector and to make recommendations for legislative and other action.
Commenting on the publication of the Final Report, the Chairman of the Parliamentary Commission on Banking Standards, Andrew Tyrie MP, said:
>Recent scandals, not least the fixing of the LIBOR rate that prompted Parliament to establish this Commission, have exposed shocking and widespread malpractice.
>Taxpayers and customers have lost out. The economy has suffered. The reputation of the financial sector has been gravely damaged. Trust in banking has fallen to a new low.
>Prudential and conduct failings have many shared causes but there is no single solution that can restore trust in the industry. The Final Report contains a package of recommendations that, together, change banking for good.
>A lack of personal responsibility has been commonplace throughout the industry. Senior figures have continued to shelter behind an accountability firewall.”
>Risks and rewards in banking have been out of kilter. Given the misalignment of incentives, it should be no surprise that deep lapses in banking standards have been commonplace.
>The health and reputation of the banking industry itself is at stake. Many junior staff who may have done nothing wrong have been impugned by the actions of their seniors. This has to end.
>Rewards for success should be better focused on generating long-term benefits for banks and their customers. Where the standards of individuals, especially those in senior roles, have fallen short, clear lines of accountability and enforceable sanctions are needed. They have both been lacking.
>It is not just bankers that need to change. The actions of regulators and Governments have contributed to the decline in standards.
A similar all encompassing indictment of our major banking leaders AND regulators AND government officials from both sides of our political aisle NAILS IT.
>Governments need to get on with the job of implementing these reforms. Regulators and supervisors need rigorously to enforce them. We need better regulation: this may mean less, not more. And we need a better functioning and more competitive banking industry.
>High standards will strengthen Britain as a global financial centre. International co-ordination, while desirable, should not be allowed to delay reform. We must get on and do what is right for the UK.
Given the misalignment of incentives in banking, it should be no surprise that deep lapses in standards have been commonplace. The Commission’s Final Report, ‘Changing banking for good’, contains a package of recommendations to raise standards.
The recommendations cover several main areas including: making senior bankers personally responsible, reforming bank governance, creating better functioning and more diverse markets, reinforcing the powers of regulators and making sure they do their job.
>A new Senior Persons Regime, replacing the Approved Persons Regime, to ensure that the most important responsibilities within banks are assigned to specific, senior individuals so they can be held fully accountable for their decisions and the standards of their banks in these areas.
>A new licensing regime underpinned by Banking Standards Rules to ensure those who can do serious harm are subject to the full range of enforcement powers.
>A new criminal offence for Senior Persons of reckless misconduct in the management of a bank, carrying a custodial sentence.
>A new remuneration code better to align risks taken and rewards received in remuneration, with much more remuneration to be deferred and for much longer.
>A new power for the regulator to cancel all outstanding deferred remuneration, along with unvested pension rights and loss of office or change of control payments, for senior bank employees in the event of their banks needing taxpayer support, creating a major new incentive on bankers to avoid such risks.
Might Washington launch a similar commission and pull back the blanket on the activities and engagements at play between those on Wall Street and their consorts in our nation’s capital? I am certainly not holding my breath, but I look forward to the release of my book In Bed with Wall Street: The Conspiracy Crippling Our Global Economy (scheduled for release in early 2014 by Palgrave MacMillan) so we can do just that.
We need to elevate the debate and pull back the blanket here in the States in order to expose the cronyism that runs rampant between Wall Street and Washington — and subsequently throughout our nation — if we care to move our economy forward and regain our position as a world leader on these fronts.
For those reading this via a syndicated outlet please visit my blog and comment on this piece of ‘sense on cents‘.
I have no business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.