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A great time for words

It’s been a great week for men of words in the banking system to come clean and tell their stories of mistakes and errors.

It started with Robert Reich, former Secretary of Labour under Bill Clinton, stating that: “The idea of a self regulating market seems quaint if not outright ludicrous in the wake of the biggest crash since the Great Depression.”

Then there were commentaries on the uproar taking place in China where businesses ballooned and collapsed. For example, Professor Liu Xue of Beijing University, believes that: “there’s a grey area between planned economy and market economy, in which government officials wield power and businessmen bribe them.” Is that why Chinese Researcher Zhao Xiao is quoted as saying that, in China, “the Forbes list has become the wanted list.”

Oh dear.

There was then a heart-to-heart with the outgoing Deputy Governor of the Bank of England, Sir John Gieve, who addressed the FSClub last year.  Sir John first of all has said that the Bank “owed more to John Sergeant (the amusing but oafish dancer on Strictly Come Dancing) than Fred Astaire” in its handling of Northern Rock, saying that “we did it clumsily” and “did not need two days of queues in the streets.”

This is true, but it did not go down well with the boss, Mervyn King. That’s why, when it came to a witch hunt of blame, Sir John was the first against the wall.

But he goes on to say some useful stuff too. For example, talking about the crisis, Sir John says that “the FSA spent too much time looking at systems and controls and not enough time looking at the business model and the numbers, and that’s going to change.”

Too right.

So what’s going to happen?

“I think we are going to end up with a leverage limit as well as some countercyclical capital requirements and possibly some countercyclical liquidity requirements.”

In other words proactive provisioning, just like Spain.

“In our case, if you go back to 2003-4, the height of our house-price boom, both then and in 2006 we saw very rapid growth in credit and asset prices and you’d have said there were real signs that financial markets and asset prices were taking off in a worrying way. Those are precisely the circumstances in which we’d have ramped up capital requirements on the banks and it could have had an impact.”

In other words, proactive provisioning, just like Spain.

Then there was the announcement of HSBC’s $17 billion rights issue with their Chairman, Stephen Green, being particularly candid about the markets.

“The industry has done many things wrong. It is important to remember that many ordinary bankers have always sought to provide good service to their customers; but we must also recognise that there have been too many who have profoundly damaged the industry's reputation.

“Inappropriate products were sold inappropriately by many. Compensation practices ran out of control and perverse incentives led to dangerous outcomes. There is genuine and widespread anger that the contributors to the crisis were in some cases amongst the biggest beneficiaries of the system.

“Underlying all these events is a question about the culture and ethics of the industry. It is as if, too often, people had given up asking whether something was the right thing to do, and focused only whether it was legal and complied with the rules. The industry needs to recover a sense of what is right and suitable as a key impulse for doing business.”

This resonates with James Baker, former US Secretary of State: "We should divide the banks into three groups: the healthy, the hopeless and the needy. Leave the healthy alone and quickly close the hopeless. The needy should be reorganised and recapitalised."

Then there is this belter, as always from London Mayor Boris Johnston, where he states that Sir Fred Goodwin “has become the epitome of the bankers who collectively occupy a place in public opinion significantly lower than cannibalistic paedophile global-warming deniers.”

But even this is beaten by Matthew Paris writing in the Times today:

“I am having increasing difficulty in believing that Gordon Brown is a person. Is he not, rather, a flawed prototype for a primitive form of artificial intelligence … Focus-grouping tells him voters are angry that top British bankers have been paying themselves fat salaries and bonuses. Key words in these reports trigger links in the Brown brain to key remedies: thus ‘angry about British banker's bonus’ triggers ‘stop British banker's bonus’.”

Ahhh … sticks and stones.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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