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This is bigger than Barclays This is bigger than Barclays
(7 months later)
As Barclays' chief executive Antony Jenkins presented his bank's strategic review today, I was reminded of what a senior regulator at the FSA told me last year. His job was to follow a bank like Barclays all year long – his team of maybe two dozen regulators versus a global behemoth with tens of thousands of employees (Barclays has a 140,000). "I am not so much worried about bankers lying to me," the regulator said. "I am far more worried about bankers lying to themselves" – deluding themselves they are in firm control of an institution that might be too big to manage.As Barclays' chief executive Antony Jenkins presented his bank's strategic review today, I was reminded of what a senior regulator at the FSA told me last year. His job was to follow a bank like Barclays all year long – his team of maybe two dozen regulators versus a global behemoth with tens of thousands of employees (Barclays has a 140,000). "I am not so much worried about bankers lying to me," the regulator said. "I am far more worried about bankers lying to themselves" – deluding themselves they are in firm control of an institution that might be too big to manage.
Jenkins' proposals seem useful and important, and the man deserves a fair chance. But his presentation marks a dangerous further step in the reframing of the debate about financial reform. Where the crisis of 2008 laid bare the systemic failure of the global financial sector, we are now constantly encouraged to view the problem as one of culture.Jenkins' proposals seem useful and important, and the man deserves a fair chance. But his presentation marks a dangerous further step in the reframing of the debate about financial reform. Where the crisis of 2008 laid bare the systemic failure of the global financial sector, we are now constantly encouraged to view the problem as one of culture.
"This is about running the bank in line with our values," he said today. Adding: "It will take years before people change their impression of us. I'm not daunted by that at all.""This is about running the bank in line with our values," he said today. Adding: "It will take years before people change their impression of us. I'm not daunted by that at all."
But the culture of finance was not the cause of the 2008 crisis, it is a symptom of the incentive structure which banks and the wider global financial sector are locked into. That structure must be broken up and reformed urgently. Jenkins may or may not fail in his attempts to clean up his own bank but if the global financial cartel is not overhauled, it will not make any difference.But the culture of finance was not the cause of the 2008 crisis, it is a symptom of the incentive structure which banks and the wider global financial sector are locked into. That structure must be broken up and reformed urgently. Jenkins may or may not fail in his attempts to clean up his own bank but if the global financial cartel is not overhauled, it will not make any difference.
There are three huge problems with the way global finance works today. One is that the sector's internal checks and balances are broken, meaning the system no longer self-corrects. In theory, risky and fraudulent behaviour should be spotted by accountancy firms and credit rating agencies. However, in the current setup, both are financially dependent on the very banks they are supposed to be a check on. Imagine it was the restaurants that paid the salaries of the Michelin reviewers. Expect to see a lot more stars or triple-A ratings.There are three huge problems with the way global finance works today. One is that the sector's internal checks and balances are broken, meaning the system no longer self-corrects. In theory, risky and fraudulent behaviour should be spotted by accountancy firms and credit rating agencies. However, in the current setup, both are financially dependent on the very banks they are supposed to be a check on. Imagine it was the restaurants that paid the salaries of the Michelin reviewers. Expect to see a lot more stars or triple-A ratings.
This failure of self-correction is compounded by market failure at the top of the global financial sector. When companies perform as disastrously as the big global banks, accountancy firms and credit rating agencies did before 2008, economic theory predicts new entrants into the market. But we haven't seen a single new bank or rating agency break through. What this means is that at the apex of the world economy there is no competition but a cartel; three big rating agencies, four big accountancy firms and a dozen "bulge-bracket" global banks.This failure of self-correction is compounded by market failure at the top of the global financial sector. When companies perform as disastrously as the big global banks, accountancy firms and credit rating agencies did before 2008, economic theory predicts new entrants into the market. But we haven't seen a single new bank or rating agency break through. What this means is that at the apex of the world economy there is no competition but a cartel; three big rating agencies, four big accountancy firms and a dozen "bulge-bracket" global banks.
In their turn, the external checks and balances are also broken – or rather, co-opted. Talented regulators and central bankers are offered life-changing salaries by the big banks, while politicians can look forward to formidable campaign donations while in office and highly lucrative jobs afterwards. Hoping for a politician to come forward with a clear blueprint for what a stable and moral financial sector looks like, and a roadmap of how to get there? Don't look to Tony "light-touch regulation" Blair, who receives £2.5m a year for unspecified "advice" from JP Morgan.In their turn, the external checks and balances are also broken – or rather, co-opted. Talented regulators and central bankers are offered life-changing salaries by the big banks, while politicians can look forward to formidable campaign donations while in office and highly lucrative jobs afterwards. Hoping for a politician to come forward with a clear blueprint for what a stable and moral financial sector looks like, and a roadmap of how to get there? Don't look to Tony "light-touch regulation" Blair, who receives £2.5m a year for unspecified "advice" from JP Morgan.
Five years ago we came terrifyingly close to a total economic collapse. If you thought the London riots of 2011 were frightening, try to imagine what it would be like if the world economy froze, trade finance broke down and supermarkets in major cities stopped being supplied. It nearly happened, but since then nothing has been achieved in the way of fundamental, structural reform. Indeed, things are worse now, with even bigger banks than in 2008.Five years ago we came terrifyingly close to a total economic collapse. If you thought the London riots of 2011 were frightening, try to imagine what it would be like if the world economy froze, trade finance broke down and supermarkets in major cities stopped being supplied. It nearly happened, but since then nothing has been achieved in the way of fundamental, structural reform. Indeed, things are worse now, with even bigger banks than in 2008.
What we need is a breaking up of the global financial cartel into bits that are not only small enough to fail but that also actually compete, driving out bad practices and driving down profits. What we get is a tacit acceptance of the status quo by politicians in big bank-hosting nations, covered up by promises to change the culture of finance.What we need is a breaking up of the global financial cartel into bits that are not only small enough to fail but that also actually compete, driving out bad practices and driving down profits. What we get is a tacit acceptance of the status quo by politicians in big bank-hosting nations, covered up by promises to change the culture of finance.
Perhaps the problem is that the major banks operate on a global scale, while responses to them must be formulated on a national level. Which brings us to the unresolved issue five years after the crisis: can you even have a global financial sector without a global regulator?Perhaps the problem is that the major banks operate on a global scale, while responses to them must be formulated on a national level. Which brings us to the unresolved issue five years after the crisis: can you even have a global financial sector without a global regulator?
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