misleading advertising? August 1, 2012
Posted by Bradley in : consumers, truth , 4commentsI haven’t seen one 5 hour energy advert that isn’t really irritating. The latest I have seen begins with the statement that they asked over 3000 doctors to review 5 hour energy. It then goes on to say “and what they said is amazing” (seems to imply the over 3000 said something amazing). The ad then says that over 73% of those who reviewed 5 hour energy said they would recommend a low calorie energy supplement to their healthy patients who use energy supplements (note that the script refers to “a” supplement, not to the 5 hour energy product itself). The ad emphasizes the 73% figure (which appears prominently on the screen) but carefully doesn’t state that the 73% is a percentage of the (over) 3000 doctors. And the ad does not state how many doctors actually reviewed the product. And what the reviewing doctors were prepared to sign on to is pretty lame. But the ad then goes on to use the 3000 number again at the end (ask your doctor, we already asked 3000), reinforcing the impression that lots of doctors approved of the product. This sort of carefully constructed message, designed to give a very different impression from the one that the actual words used, carefully parsed, give should, I think, be treated as problematic in law.
perceptions and misperceptions: theatre and the commission July 27, 2012
Posted by Bradley in : financial regulation, life , add a commentThis week I went to see The Transit of Venus by Eric Northey at the 24:7 Theatre Festival in Manchester (UK) (today is the last day of the festival). The play was described as
a very cerebral, intelligent piece of writing, which unfortunately results in an overly highbrow performance which lacks any real emotional engagement on the part of the audience.
It is an intelligent play, but I thought the issues it raises of the relationship between science and religion are more than just cerebral issues. And I am not sue this is just because I live in the USA where evolution sometimes gets to be so controversial. Anyway, I thought the characters were believable (I was most impressed by Nathan Morris).
I saw A Midsummer Night’s Dream, a Filter Theatre Company production, at the Royal Exchange. This was like no production of the play I have seen before – in a good way – it was extremely lively and very very funny, but at the same time the actors sometimes spoke the lines in new ways that made you think. It’s on until 4th August.
Meanwhile the Commission announced that it would be changing the EU’s market abuse rules to deal with manipulation of key benchmarks (and there are proposed new provisions for the proposed regulation and for the proposed directive). No public consultation on this – the deliberations on the main measures are ongoing and have been for some time, and in one sense the changes may seem relatively small. and it allows the Commission to seem to be acting quickly to restore confidence.
“poor rules, poor theory, and poor institutional structure” July 20, 2012
Posted by Bradley in : financial regulation , add a commentFrom Adair Turner’s speech in Manchester. He says we shouldn’t get distracted by individual cases of bad behaviour (although there do seem to have been a lot of those, and not just in the UK). He blames the financial crisis on:
three major policy failures: poor rules, poor theory, and poor institutional structure.
* We had totally inadequate rules on bank capital and bank liquidity, which had been agreed by apparent experts from regulators and central banks across the world; rules which allowed banks to run with levels of capital which we now consider a fraction of that required to ensure a stable banking system.
* We also had a flawed theory of economic stability – supported by many apparent experts in economics faculties throughout the world – which believed that achieving low and stable current inflation was sufficient to ensure economic and financial stability, and which failed to identify that credit and asset price cycles are key drivers of instability.
* And in the UK certainly, but also in some other countries, we had an institutional structure of responsibilities which left an underlap between an inflation-targeting central bank and a rule-driven regulator – with no-one clearly responsible for assessing the big picture risks and no-one equipped with the tools to address them.
These references to “apparent experts” are provocative. But for the future, how will we distinguish between apparent and real experts? There’s not much prospect we will stop looking to “experts” for answers.
He also discusses the problem of how to encourage bank lending to aid recovery. In a way it is not surprising given what is happening in Europe to see a financial regulator thinking about economic policy together with financial regulation (I have just been working on a paper on the situation in the EU which notes this connection) but in another way it is rather new and strange. He says:
The FPC’s ability to consider policy options in an integrated fashion, taking into account central bank liquidity insurance when designing prudential liquidity policy, is therefore peculiarly important in deflationary times.
financial services consumers panel recommends changes to uk financial services bill July 19, 2012
Posted by Bradley in : consumers, financial regulation , add a commentIn a press release yesterday the FSCP argued that Legislators must force cultural change in financial services. The FSCP Briefing on the Financial Services Bill states:
The key changes the Consumer Panel would like to see are:
• a duty of care for those providing financial services;
• a requirement for the Prudential Regulation Authority (PRA) to take into account the views of consumers by responding to representations from the Consumer Panel;
• a requirement of access for all consumers to financial services;
• an increase in the transparency of financial services regulation by empowering the PRA and Financial Conduct Authority (FCA) to disclose information about the financial services firms they regulate;
• effective competition powers for the FCA to allow it to deliver its statutory objectives; and
• a requirement for the regulators to undertake full and robust cost benefit analysis when developing new rules
another non-profit voting scheme requires facebook (or stayclassy) account July 17, 2012
Posted by Bradley in : life , 1 comment so farAt the end of last month it was Mission:Small Business, now the Classy Awards will only accept votes from people with facebook or Stayclassy accounts.
parliamentary commission on banking standards appointed July 17, 2012
Posted by Bradley in : financial regulation , add a commenta joint Committee appointed by the House of Commons and the House of Lords to consider and report on: professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process.. lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy
The members of the committee are Andrew Tyrie, Chairman, Mark Garnier, Andy Love, Pat McFadden, John Thurso, Lord Turnbull, Baroness Kramer, Lord Lawson, Lord McFall, and the Bishop of Durham.
financial stability and libor July 17, 2012
Posted by Bradley in : financial regulation , add a commentThe Treasury Committee, meeting today to discuss the Bank of England’s June 2012 Financial Stability Report began by picking up where they left off yesterday with Turner asking why King was involved in the discussions with Agius about Diamond’s position at Barclays. Andrew Tyrie asked why, when the FSA was the regulator, the Bank of England was involved. Turner insisted on the legitimacy of the Bank of England’s concern with confidence in banks given the Bank’s role in providing liquidity support to banks. And he said the FSA was not taking the position as the regulator that Diamond was not fit and proper (it was not a formal direction). Tyrie expressed some concern for the future that the position of chief executives of banks should not hang on the whim of some future Governor of the Bank of England.
On the issue about whether the Bank encouraged lowering of Libor quotes, there are some newly released emails. And Tucker was in the hot seat over this issue again.
When central bankers meet at Basel every couple of months there is a smaller group of major countries that meets, King says, in the context of questions about his interactions with Geithner over Libor governance.
Meanwhile there are news stories about other competitors to Libor based on actual transactions, for example the DTCC GCF Repo Index and AFMA’s bank bill swap reference rates. Ben Bernanke, giving evidence to the Senate Committee on Banking, Housing and Urban Affairs, commented unfavourably on the lack of responsiveness of Libor to the US suggestions for governance changes and suggested that transaction based measures of interest rates were preferable.
transparency and financial regulation July 16, 2012
Posted by Bradley in : consultation , add a commentIn early May I noted that the High-level Expert Group on Reforming the structure of the EU banking sector was running a consultation. The web page for the consultation suggests that there were no responses to the invitation to comment. Perhaps the consultation wasn’t well advertised? Perhaps the questions were too open ended?
uk libor hearings July 16, 2012
Posted by Bradley in : financial regulation , add a commentAt the Treasury Select Committee Jerry del Missier appeared. Neither del Missier nor the Committee seemed on top form here. They went round and round – committee members tried to get him to make damaging admissions, and what they got was mostly that he didn’t know what was going on.
Then the FSA team: Turner, Bailey, McDermott. Bailey and Turner seem pretty clear that Diamond’s evidence to the Committee gave a not very accurate impression of Bailey’s visit to Barclays and the Turner letter. Turner said that his letter was the only letter he had sent of this type as Chairman of the FSA. Barclays was a problem in terms of its attitude to regulation. The Committee members were competing with each other over how critical to be about the FSA and its response to the Libor fixing issues, with a number of references to ordinary people and what they would think about the whole thing.
geithner to king re: libor July 13, 2012
Posted by Bradley in : financial regulation , add a commentThe Bank of England published communications between Geithner and King in May 2008 with respect to ideas for changes to the BBA governance arrangements. That the then President of the Federal Reserve Bank of New York should be seeking to affect the way in which Libor is calculated is odd, given the origins of US dollar Libor as an offshore rate. US dollar Libor developed to avoid interest rate controls in the US. Of course, by 2008 Libor had become standardized and had moved back into the US as a rate of interest used in domestic US transactions, so the history wasn’t so relevant. Still, the idea of federal reserve/central bankers in the UK and US co-operating over the governance of Libor is interesting.
As to what Geithner proposed, as well as some sensible-seeming governance suggestions, for example that Bank auditors be expected to attest to the accuracy of banks’ Libor rates, and an idea of establishing random sampling of rates submitted by an expanded set of contributor banks to minimize misreporting, there are some other rather different suggestions. For example, Geithner says that more US banks should be involved in Libor fixing (and this would surely help improve the profile of these banks). He also suggests a second fixing after the US markets open because this would be more indicative of conditions while the US market was open. But Libor was supposed to reflect rates in London and not in New York. Now, it is true that whereas in the early days there were divergences between Libor and domestic US rates, over time there was a convergence. But what to make of this? To force greater convergence or not? I find the combination of these suggestions (with King’s response that the Bank of England would ask the BBA to include them in its consultation document) with the language early in the Geithner memo about enhancing “perceptions of the BBA as an objective intermediary in the rate-setting process” to be rather odd. Was the BBA to be the Fed’s poodle or an objective intermediary? Was Libor to be a rate derived from the market or one managed by central banks?
The New York Fed also released documents this morning for the forthcoming Congressional hearings into Libor. These documents raise one question which doesn’t really feature (yet) in all of the inquiries and investigations into what happened, and that is why, given that it looks as though there really wasn’t an effective interbank market frequently during the crisis, no-one seems to have thought to recognise that fact. After all, documentation for Libor-based transactions has contained language providing for what happens if there is no Libor since inception.
So now back to the Geithner memo. How can a mechanism to feed US market based rates into Libor fixing be a solution to a problem that Libor does not in fact reflect what it purports to reflect which is rates in the London interbank market? There seems to me to be a transparency issue here.