culture of banking November 13, 2012
Posted by Bradley in : financial regulation , add a commentFrom Michael Cohrs, a member of the Financial Policy Committee at the Bank of England, in a speech today, a reminder of why it is that the culture of banking matters:
Reading, in one case, about traders shouting across the floor to submitters asking them to submit preferential rates, has shocked most people. The cultural problem seems to have extended from the trading floor right through middle management to senior management. There looks to have been an inadequate response from both the executive officers and the Board of Directors. It is not clear to me that the shareholders were very concerned once the news broke. This incident and others, primarily relating to conduct related issues, show just how much work there is to do to create financial institutions with a culture of producing the best product possible and caring for the client’s interests first.
As I read comment letters submitted in consultations by financial firms and trade associations and notice the common references to the best interests of consumers I do wonder why policy-makers would take such comments seriously.
jotwell: review of kraus and raso November 13, 2012
Posted by Bradley in : jotwell , add a commentbrian eno and ha-joon chang November 11, 2012
Posted by Bradley in : life , add a commentThe Guardian brought these two together and the resulting discussion is fascinating. Both focus on the space between control and chaos in art and in economics.
Brian Eno says:
Quantification is a big temptation for society because it looks like control.
Ha-Joon Chang responds:
People tend to think that numbers are quite objective, but numbers in economics are not like this. Some economists say they’re like sausages: you don’t know what they really are until you cut into them. Once you know, you become very sceptical …
I’m not against numbers. You need some numbers, to work with. Life would be impossible otherwise. But we’ve made these numbers into fetishes.
international association of legal methodology conference: transparency October 31, 2012
Posted by Bradley in : events , add a commentThis week I am going to New Orleans for the International Association of Legal Methodology / Association Internationale de M̩thodologie Juridique XIIth Congress / XII̬me Congr̬s Р1-2 November 2012 / 1er et 2 Novembre 2012 which is focusing on the topic Transparency, A Governance Principle. I am going to be presenting a paper with the title Open Government, Transparency and Financial Regulation. Here is the abstract:
Governments and transnational standard-setters emphasize the importance of open government and transparency, and use consultation exercises to take account of the views of people and firms they characterize as stakeholders. But, although the stakeholder concept is intended to be inclusive, it necessarily excludes some members of the world’s population. Accountability to stakeholders is necessarily a limited form of accountability. Two characteristics of financial regulation interfere with the attainment of open government and transparency in this field. First, financial regulation is complex. Second, those who claim to, and do, understand the complexities of financial regulation are experts, rather than non-expert citizens.
The construction of the concept of the stakeholder in consultations is critical. Requests for comment and consultation documents frequently identify specific categories of stakeholder who may be affected by or interested in the questions raised by the consultation. Response forms and/or consultation documents may invite or require respondents to categorize themselves. But consultation documents and questionnaires do not explicitly address the issue of how they define, or why they do not define, the relevant stakeholders for a particular set of issues. This lack of explanation of definition constitutes a core lack of transparency in the consultation process.
haldane on fixing banking October 30, 2012
Posted by Bradley in : financial regulation , add a commentAndy Haldane gave a speech to Occupy Economics yesterday. He noted:
the crisis was… the story of a system with in-built incentives for self-harm: in its structure, its leverage, its governance, the level and form of its remuneration, its (lack of) competition. Avoiding those self-destructive tendencies means changing the incentives and culture of finance, root and branch. This requires a systematic approach, a structural approach, a financial reformation.
He identified five cs of the ongoing financial reformation: culture; capital; compensation; credit; and competition. And he described some of the regulatory changes under way which relate to these five cs. Cultural change was described as being about separating banking from investment banking, which is only a small part of the sort of change some would like to see. And implementing the separation is proving to be really complex. But in discussing competition he talked about Handelsbanken:
They may be the fastest-expanding bank in the UK at the moment… Their business model is fascinating, Quaker-even, in its orientation. They offer only basic banking services, mortgages and small business loans, to people in a tight, locally-defined catchment area.
All credit decisions are taken locally by people, not centrally by a computer. No bonuses are paid and no-one has a sales-target. When the whole firm out-performs, a contribution is made to a pooled fund which is invested on employees’ behalf. The fruits of success are distributed equally and gratification is deferred.
For banking, this is back to the future. If that sounds attractive, then it is down to us – not regulators, not politicians, you and I – to deliver it. If as bank customers we want to change the culture of banking, then we should start by supporting those banks who are delivering that change. Putting your money where your mouth is would deliver far greater and more durable change than any amount of banker-bashing.
gender and economic policy October 26, 2012
Posted by Bradley in : eu, gender , 1 comment so farMEPs rejected Yves Mersch as a candidate for the ECB Executive Board on the basis that insufficient attention is being paid to the issue of gender (the decision is here). If Mersch is appointed to the Executive Board it will likely be all male at least until 2018.
Press reports suggest that the Parliament’s emphasis on the need for gender diversity at the ECB is a distraction from the serious issues of addressing the crisis, and make the EU look less credible. But this downplaying of the issue seems to me to be emblematic of the problem. Not working to take advantage of the talent of women as well as of men is short-sighted.
The World Economic Forum’s Gender Gap Report for 2012 which examines the gender gap in countries around the world states:
The correlation among competitiveness, income and development and gender gaps is evident… While correlation does not prove causality, it is consistent with the theory and mounting evidence that empowering women means a more efficient use of a nation’s human talent endowment and that reducing gender inequality enhances productivity and economic growth. Over time, therefore, a nation’s competitiveness depends, among other things, on whether and how it educates and utilizes its female talent.
cameron on the eu summit October 24, 2012
Posted by Bradley in : eu , add a commentFrom a statement to the UK Parliament on October 22:
Britain is not in the eurozone and we will not be joining the eurozone, but it is in our national interest for the uncertainty surrounding the eurozone to end. I have argued for some time that a working eurozone needs a working banking union. It is one of the features that a successful single currency needs. Obviously you do not need a banking union because you have a single market; you need it because you have a single currency—so Britain should not, and will not, be part of that banking union.
Britain’s banks will be supervised by the Bank of England, not by the European Central Bank, and British taxpayers will not be guaranteeing or rescuing eurozone banks, but we do need eurozone members to get on with forming a banking union. At the Council, I joined those who were arguing for progress to be made on the plan that had been announced in June. To put it simply, I believe that it is not enough to have a banking union that is stripped of the very elements—such as mutualised deposit guarantees, a common fiscal backstop and a framework for rescuing banks—that are needed to break the dangerous link in the eurozone between sovereign debt problems and the stability of eurozone banks. But because not all countries outside the eurozone—like Britain—will want to join such a banking union, it is also essential that the unity and integrity of the single market is fully respected. The organisation that currently ensures a level playing field for banking within the single market is the European Banking Authority. We need to make sure that it will continue to function properly, ensuring fair and effective decision making. This, again, is specifically recognised in the conclusions. More broadly, as eurozone countries take steps to deepen their economic and monetary union—as they will—it is important that we secure, as I did, an explicit commitment in the conclusions that the final report and road map in December will include “concrete proposals†to ensure that the integrity of the single market is respected.
In response to questions he said:
We want the eurozone banking to go ahead, but there are dangers, because if the ECB members voted en bloc in the European Banking Authority, they would automatically have qualified majority voting—that is the problem. That is why the conclusions of the summit include these words:
“An acceptable and balanced solution is needed regarding changes to voting modalities and decisions under the European Banking Authority…Regulation.â€
That is very important conclusions language that we fought quite a battle to secure. My point is that I do not want to veto the banking union, but unless this problem is properly sorted—and Britain has a totally legitimate argument about why it needs to be sorted—we cannot allow it to go ahead.
deferred prosecution agreements for the uk October 23, 2012
Posted by Bradley in : consultation , add a commentThe UK Ministry of Justice announced that it would be introducing Deferred Prosecution Agreements in the UK. The announcement follows a consultation initiated in May 2012. The Government’s response to this consultation was published today. The Government’s response lists those who replied to the consultation but mostly characterizes the responses rather than identifying particular views with particular respondents. The responses (which are not available from the consultation page but some of which can be found online) raised some serious issues. Commenters raised questions about whether DPAs would tend to benefit larger commercial organizations rather than smaller firms which might be “softer targets” for criminal prosecutions (e.g. the Law Society’s response). Transparency International noted:
our concern that DPAs may be introduced primarily to provide an incentive to powerful companies who are not as resource constrained as prosecution agencies to settle cases at an earlier stage.
The Law Society pointed out that “the use of internal investigation material in subsequent investigations” would have human rights implications. The City of London Law Society Corporate Crime and Corruption Committee worried that the introduction of DPAs would prejudice junior employees. The Criminal Bar Association and Law Reform Committee of the General Council of the Bar of England and Wales suggested that there was insufficient evidence to determine whether DPAs were a good idea:
A proper review of the current regimes for dealing with economic crime should be conducted, addressing the different tools available to the prosecuting authorities and the degree to which they are working effectively. It is only then that the need for DPAs can be properly assessed and correctly structured to produce the best outcomes. Further, the use of DPAs in the United States also needs to be properly considered both with regard to its success in fighting serious financial crime and in bringing those responsible to justice.
Comments suggested that the consultation should have considered areas where regulators entered into negotiations with those subject to regulation. Jones Day wrote that the OFT’s experience with its leniency policy was relevant.
The Government reacted to the various responses in this way:
All told, we believe, and the consultation responses confirm, that the DPA model is a sensible and pragmatic means of identifying and penalising more corporate offenders. DPAs will help protect the public by tackling economic crime that currently too often goes without remedy.
But the comments that are readily available on line do not really seem to bear this out – they certainly do not establish conclusively that DPAs for the UK are the product of evidence-based policy-making. Moreover, the idea that transparency is identified as a critical component of the arrangements for DPAs in the context of a consultation which is not a model of transparency itself is a bit odd.
commission wants to distinguish between good and bad gambling October 23, 2012
Posted by Bradley in : gambling , add a commentIn today’s Communication on a comprehensive European framework for online gambling the Commission states:
While fully respecting each Member State’s right to determine the regulatory framework for gambling services, the Commission sees significant benefits in the development of a range of authorised gambling opportunities in order to effectively dissuade consumers from using other gambling offers. It is important for authorised operators to be able to offer sufficiently attractive products, because in the absence of credible and sustainable offers consumers will continue to turn to unregulated gambling websites, with the ensuing potentially harmful effects.
what single market (commission proposes enhanced co-operation with respect to financial transaction tax)? October 23, 2012
Posted by Bradley in : eu , add a commentDespite industry opposition, the Commission has published a proposal for a Council Decision approving enhanced co-operation with respect to a financial transaction tax after it became clear that the EU as a whole would not adopt such a tax because of “fundamental and un-bridgeable differences amongst Member States” which meant that unanimous agreement (required for tax measures) could not be achieved. But the document recognises that the original proposal for an EU ftt was based on the idea that different approaches in different Member States would distort competition and fragment the market. Harmonized rules for a subset of EU states also risk distorting competition and fragmenting the market. The Commission says:
Risks of fragmentation of the internal market and of a distortion of competition will first of all be reduced and/or avoided within the scope of the FTT jurisdiction covered by enhanced cooperation. Compared to a situation without such cooperation, the functioning of the internal market, at the level of the 27 Member States, would be improved rather than undermined.
Enhanced co-operation must not “undermine the internal market or economic, social and territorial cohesion. It shall not constitute a barrier to or discrimination in trade between Member States, nor shall it distort competition between them” and Art 329 TFEU states that “[a]uthorisation to proceed with enhanced cooperation shall be granted by a decision of the Council acting unanimously.” So it isn’t obvious that this will happen. But alongside the uncertainties about the banking union/SSM the proposal raises new questions about whether the EU will in fact have a single market in financial services any time soon.