I’m not an economist but it seems that the British public having faith in our banking industry again is as likely as talking poetry with the taxman.
In this year’s Reith Lectures, Professor Niall Ferguson called for simpler regulation and stronger enforcement of the rules as a recipe for a better banking system. Complex regulation benefits no one but lawyers and a laissez faire regime creates the conditions in which fraud and negligence thrive.
This week, another bank chief, Bob Diamond, has admitted the much more serious charge that Barclays rigged rates at the height of the financial crisis. The news has already cost Barclays more than £3bn in share value and could cost Mr Diamond his job.
Even Stephen Hester, chief executive of RBS, whose computers have gone down so inconveniently, can do better than that. He has been very clear about who is responsible and what is to be done about it and if sorting it takes too long, no doubt he’ll fall on his sword.
In both cases, expect the pain of sudden unemployment and disgrace to be alleviated by a large severance package. Knowing you will probably get away with it is a powerful incentive to criminals and a charter for incompetent chief executives who are never really sacked, merely recycled.
I believe the biggest problem with the banking industry is not greed, because it’s only natural for greedy people to gather where the money is. Nor is it lack of regulation, because there are regulations although much less than we had before FSA were stripped of its powers. Strong enforcement and clear regulation are mutually dependant. You can’t have one without the other.
I believe the biggest problem is the failure to legally punish wrong-doers and how that allows for this culture to grow. There are laws aplenty to deal with those who offend but punishing the guilty is only possible if you know who they are and they know what they are responsible for.
Nevertheless, it seems to me that those responsible will never be punished in law. The coalition government seem to be ignoring the same institutions, by not calling for a public enquiry.
Despite tent pitching, placard waving and energetic calls for social justice, nobody responsible for the systematic failure at Barclays and places like it will get anywhere near a courtroom let alone a jail.
In fact few bankers go to jail each year for individual criminal acts of insider trading and false accounting. Institutional greed and carelessness such as the sub-prime mortgage scandal which triggered the 2008 crash and plunged the world into recession are seldom punished.
Failed institutions are bailed out even when it is clear they should be shut down. In no other industry, except banking, would you see insolvent organisations rescued as a matter of course.
The effect on the tax payer which repeatedly subsidises the serial failures is to drain our national budget of resources and of the will to keep succeeding.
The get out of jail free card for failing institutions is that the share holders and account holders will suffer if they’re not rescued.
It’s hard to work out who is in charge in a landscape filled with partners, collaborators, networks, and boards. Deeper and thicker mud for regulators to wade through.
The concern is who will lead the way out of this financial crisis? The banks, the FSA or other independent financial regulatory body? If this doesn’t happen we will be set follow other European countries who have declared themselves financially insolvent or bankrupt.
Will Britain soon join other countries who are in need of the International Monetary Fund to broker a rescue package? The IMF, considered by many as an undemocratic financial authority, may not be ready to lead the world in accountability, but it’s a sorry state of affairs if they can’t be better at it than the banks.