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Today's controversial banking report: reactions from the City

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The government’s long-awaited report from the Parliamentary Commission on Banking Standards(PCBS) into banking has been released today.

The 571-page monster advises, among other things, that; senior bankers who disregard their responsibilities should be criminally prosecuted; that there should be a new set of regulations for those in a bank who can potentially cause it serious harm; and that banker pay should be deferred by up to 10 years and ultimately linked to the performance of the institution. (Read more here.)

Justin Urquhart Stewart, Co-Founder, Seven Investment Management:

Ah the joy of perfect 20:20 hindsight. It’s the first time I have had to consider prison selection as a possible career alternative. Of course, white collar crime should be seen as a crime, but business incompetence isn’t a crime. Banks need better management and that is already starting, as you can see with excellent appointments like Antony Jenkins at Barclays. We in the wider ‘City’ should get on the front foot to prove our value, our success and our trust to the nation.

Mark Boleat, Policy Chairman, the City of London Corporation:

The City of London Corporation welcomes the contribution of the PCBS to this vitally important debate about the future of UK banking. The recommendations outlined in this report today put forward some sensible suggestions on incentives, improved accountability and increased competition, designed to encourage long-term thinking and sensible risk management.

It is important, however, to note that much work has already been done in this area and the impact of past reforms should be properly assessed before more changes are introduced. What the banking sector needs is clarity and certainty from policymakers over the future shape it will be required to take in coming years. The City Corporation stands ready to help facilitate dialogue to explore how to implement these recommendations.

Dr Roger Barker, Director of Corporate Governance, the Institute of Directors:

Good corporate governance requires transparency so the IoD welcomes the steps that are being taken to reveal the true owners of companies. Company structures cannot be allowed to be misused for illegal or unethical ends. One very important element of the action plan is extra supervision for company formation agents. They are often the weak link, failing to get enough information on who ultimately benefits from a company.

There may well be practical obstacles to implementing these reforms, this is only the beginning of the process, but the Government’s intentions are absolutely right.

Professor Andre Spicer, Cass Business school:

The recommendations of the banking standards commission are important step to making the UK banking sector more sustainable. These changes include both the velvet glove of culture change as well as the iron fist of changes to regulations, rewards and punishment. Banks are going to need to significantly change their business models. They will need to move out of more risky and lucrative markets and become simpler, more conservative and more sustainable institutions.

What remains uncertain is exactly how much will and commitment there is to implementing this report, as the longer term implications indicate a less profitable sector. Perhaps the most striking implication for banks is that they would no longer have safety net of a government bailout.

Sam Bowman, Research Director, Adam Smith Institute:

This report’s recommendations are worrying because they undermine the Rule of Law in order to punish an unpopular group in society. The fault lies with the government for sparing bankers from the consequences of their decisions by bailing banks out, and politicians who gave failing banks money are the ones we should be angry at. This sort of regulation, designed to make banks act ‘responsibly,’ is exactly what caused the 2008 crisis to begin with – capital requirements that incentivised banks to take on mortgage debt and government bonds were intended to make banks act more safely, but ended up making the crisis system-wide. We already have a mechanism for punishing people in business who act recklessly: bankruptcy. If our government had let this mechanism work, as Iceland’s did, we might not be in such a bad situation today.

 

And from the other side of the fence..

Occupy Economics’ press release:

Our big banks are like cosseted, unruly teenagers refusing to wean themselves off parental largesse. We need to cut the umbilical cord. The Commission’s report sees the political establishment still struggling to find the resolve to deal with the scale of that issue. Changing Banking for Good is better at analysing problems than identifying commensurate solutions.

Criminal sanctions and clearer management accountability are welcome as far as they go.  But they will not stop banks from ‘perpetually gaming the system.’ They have the air of displacement activities for politicians unwilling to grasp the nettle of Too Big To Fail. […] Despite this, the report makes at least one important recommendation. Occupy Economics agrees that a leverage ratio should be substantially higher than 3%. We also agree that ending the tax incentive to debt finance is overdue. And obliging banks to publish, and remedy, the gender ratios on their trading floors is, we think, also a step in the right direction.

You need to read:

Justin Urquhart Stewart: An alternative way to privatise?

The future of money: the five forces killing off cash

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