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ethics in government May 19, 2009

Posted by Bradley in : ethics , comments closed

The UK expenses scandal has forced the resignation of the speaker of the House of Commons, Michael Martin. Meanwhile, Helena Kennedy argues forcefully for some real, rather than cosmetic, changes to British governance:

The temptation for the parties will be to sack a few people and redesign the allowance system but if public trust is to be restored there has to be a much more radical rethink. There has to be root-and-branch reform of parliament, both the Lords and the Commons, a written constitution, proportional representation, proper funding of political parties, a real curb on commercial lobbying, extended powers for select committees and fewer powers for the whips, a proper pay structure for MPs, more participative democracy and a re-ignition of local government to create new avenues for people to enter the world of politics. Any and all reforms must be guided by the knowledge that what people most want is an ethical political system. It is a moment to be seized and if the government is courageous enough it could even change its fortunes.

bankers’ remuneration May 15, 2009

Posted by Bradley in : financial regulation , comments closed

In a week when UK press attention has been focused on MPs’ expense claims (it’s a bit like reading about corporate scandals, but on a smaller, rather more ridiculous, scale) the House of Commons Treasury Committee published its report on corporate governance and pay in the City (note that none of the members of the committee appears on the lists of MPs the Telegraph has identified as makers of dubious claims). Here’s a taste:

On remuneration we conclude that the banking crisis has exposed serious flaws and shortcomings in remuneration practices in the banking sector and, in particular, within investment banking. We found that bonus-driven remuneration structures encouraged reckless and excessive risk-taking and that the design of bonus schemes was not aligned with the interests of shareholders and the long-term sustainability of the banks. We express concern that the Turner Review downplays the role that remuneration played in causing the banking crisis and question whether the Financial Services Authority has attached sufficient priority to tackling remuneration in the City.

There are some questions in the report about whether it is wise to rely on people very connected to the financial markets to develop solutions to the current problems, for example:

We suspect that Lord Myners’ City background, and naiveté as to the public perception of these matters, may have led him to place too much trust in an RBS Board that he himself described to us as “distinguished”.

And:

we are not convinced that Sir David’s background and close links with the City of London make him the ideal person to take on the task of reviewing corporate governance arrangements in the banking sector.

But there’s some other, rather odd, stuff too. I suppose that because this report is part of a series (after reports on Icelandic banks and dealing with bank failures) there’s a temptation to shove stuff in even if it doesn’t fit very well, but why does a discussion of the role of the media (in particular of whether the media encouraged the run on Northern Rock, rather than of media coverage of remuneration issues) appear in a report on corporate governance and pay? On the other hand, perhaps this is a good thing, as the committee does not endorse silencing of the media in financial crises:

The press has generally acted responsibly when asked to show restraint in particular areas. Too often, indeed, those responsible for creating the current crisis have sought refuge in blaming the media for their own conduct….it is crucial that the public are kept informed about institutions holding their money. If the public is to trust the banks in the future it needs to be confident it has sufficient information on how they are operating, and that such information is not restricted to those on the inside. Indeed, the Government may wish to look carefully about the disclosure obligations applying to banks and other financial institutions to see if further transparency would be beneficial.

merger of sifma europe and liba May 5, 2009

Posted by Bradley in : lobbying , comments closed

SIFMA Europe and the LIBA have announced that they will merge “their London-based operations into a single independent European organisation”. Regional organizations will be linked through a Global Financial Markets Association:

Over recent years LIBA and SIFMA-Europe have increasingly worked closely together. LIBA’s primary expertise in successful policy and advocacy work complements SIFMA-Europe’s product-focused knowledge and activities. The merger is the next logical step toward a fully-integrated, efficient and cost-effective European operation.
As market and regulatory developments increasingly take place on an international stage, a global-facing organisation is the optimum structure to serve best members’ interests.

Rationalization and cost-savings seem to be drivers of the decision, though there will be a loss of whatever benefit comes from having comment letters jointly produced by two organizations.

what's in a name? April 30, 2009

Posted by Bradley in : Uncategorized , comments closed

In deference to the fine sensibilities of pig farmers, the EU isn’t calling the current virus “swine flu”, but rather “novel flu”. Apparently they are not so worried about the feelings of authors and publishers (and in any case, in other languages this doesn’t work – in French the illness is being called un nouveau virus de la grippe).
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experimental formatting of equality bill April 29, 2009

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This week the UK government published a huge Equality Bill and did so in a new format: if you use the pdf version you can see the explanatory notes and bill text on facing pages, rather than having to read the two documents separately. There’s an html version which is easier to read: setting the pdf reader to to see two pages side by side means the text is tiny on my monitor, and in trying to align the bill text and explanations they had to include a lot of empty space in the printed text. But the cost of the html version is you have to click around a lot – it is divided up into small chunks- and this is a bit irritating. Even though I ‘m pretty wedded to pdf format documents as a general rule, I think it is easiest to read the “interwoven” html version. But the drafting is very, very complicated – it’s not particularly user friendly in that respect.

cebs remuneration principles April 20, 2009

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The CEBS published its High Level Principles for Remuneration Policies today. I wish some group would publish some low-level principles for a change – there’s something awfully general – even meaningless – about these very general principles (although I’m not entirely sure of the wisdom of trying to regulate remuneration either). The CEBS received 12 comments on the consultation paper, and these are available on its website. Responses were mostly from financial trade associations (although the Danish Shareholders Association and UNI Europa Finance also responded). The Italian Banking Association argued, for example, that the CEBS should conform its principles to international standards so as not to put European firms at a competitive disadvantage. The BBA suggested that using the word clawback wasn’t helpful because it isn’t a helpful legal term in some jurisdictions. But given that the document only seems to have been published in English I’m not sure it was ever meant to be used as a legal term as the laws of most of the EU countries aren’t written in English to begin with. But this is financial regulation, and we do that in English – even in a multilingual union. I do wish the Basel Committee would approach consultation – and transparency about the results of consultation more like this.

basel committee consultations April 16, 2009

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Yesterday the Basel Committee published Supervisory guidance for assessing banks’ financial instrument fair value practices. The announcement notes that “A consultative version of this paper was released in November 2008.” Although the consultative document invited comments by February 6, 2009, neither the paper nor the announcement stated where any comments should be sent (the CEBS, in contrast, provides an email address for the submission of comments on its documents). I suppose that if you are the sort of person whose comments the Basel Committee is interested in hearing from you knew whom to contact. And although there are some changes between the consultative and final versions (there’s a more detailed discussion of governance structures and control processes) there is no explanation in the final version about whether the changes resulted from comments or not. We are not told how many comments the Committee received, or from whom, or what the commentators said. This is clearly at the opaque end of the transnational standard-setting spectrum.

fighting stress in the uk and in miami April 15, 2009

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The BBC and the Miami Herald both addressed the issue of how to fight stress this week. The proposed solutions aren’t exactly the same. Top of the BBC’s list are lightboxes – which we don’t need in Miami!
The BBC’s list: lightboxes, get out in the garden, get yourself out of breath, cook a meal from scratch, stroke a cat, pat yourself on the back, take up a lifetime hobby, do something for someone else…for free, seek intimacy and good things take time. The Miami Herald: exercise, positive thinking, hypnosis, massage, tai chi, yoga, laughter, music, meditation, biofeedback, make a friend, acupuncture and get going. There are some similarities here: both lists suggest exercise and positive thinking , for example. But whereas the Miami list is largely focused on what the stressed out person can do for herself, the BBC’s list encourages more looking outwards. Even stroking a cat is presented as being a good thing partly because it involves giving: “in a way we reward ourselves by being nice”. Nowhere does the Miami list suggest that being nice to others or volunteering can help you fight stress. I’m probably culturally conditioned to prefer the BBC’s approach, but it does seem more appealing.

uk consultation on consumer credit directive April 14, 2009

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The UK’s Department for Business, Enterprise and Regulatory Reform today published a consultation document on implementation of the consumer credit directive. Although the directive was adopted nearly a year ago (and so one might have thought there could have been an earlier publication of the consultation document), the consultation period is to be 8 weeks long rather than the usual 12 weeks because of the need to give lenders as much time as possible to comply with the new rules.

There’s a long and detailed discussion of how to implement the requirement (in Art. 5(6) of the directive) that:

Member States shall ensure that creditors and, where applicable, credit intermediaries provide adequate explanations to the consumer, in order to place the consumer in a position enabling him to assess whether the proposed credit agreement is adapted to his needs and to his financial situation, where appropriate by explaining the pre-contractual information to be provided in accordance with paragraph 1, the essential characteristics of the products proposed and the specific effects they may have on the consumer, including the consequences of default in payment by the consumer. Member States may adapt the manner by which and the extent to which such assistance is given, as well as by whom it is given, to the particular circumstances of the situation in which the credit agreement is offered, the person to whom it is offered and the type of credit offered.

The consultation document suggests that at one extreme UK rules could implement this requirement by leaving it up to the consumer to decide whether explanations were adequate while at the other extreme the responsibility to ensure suitability could be imposed on the lender. I’m not at all sure that the description of a minimal solution would comply with the requirements of the directive, but what is proposed is somewhere on the middle, although with a suggestion that customers might be able to opt out of lengthy explanations.

A similar choice between minimal and maximal implementation is offered with respect to the obligation under Art. 8 to assess the consumer’s creditworthiness. The consultation document proposes to set different requirements for different lending contexts.

With respect to both issues there’s a sense that the drafters of the document wanted to present the minimal and maximal strategies as the worst possible outcomes (from different perspectives) so that the compromises suggested look more reasonable from either perspective than they otherwise would.

borrowing in supranational standard setting April 9, 2009

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Years ago I was told by the editors of an academic journal that I couldn’t write in an academic article that the EU’s harmonized rules on financial regulation might be looked to as a model (not the model, just a model) for the development of international standards (an external reviewer had a problem with the argument). So, when I see things like this I feel a little bit vindicated. The FSF Principles for Cross-border Cooperation on Crisis Management state:

In preparing for financial crises, authorities will … Develop common support tools for managing a cross-border financial crisis, including: these principles; a key data list; a common language for assessing systemic implications (drawing on those developed by the EU and by national authorities); a document that authorities can draw on when considering together the specific issues that may arise in handling severe stress at specific firms; and an experience library, which pools key lessons from different crises.