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UK to Propose Legislation to Contain Banker Pay, Make Suits Against Banks Easier

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The theater is starting to get interesting. Here in the US we have banker pay theater masquerading as the real thing. Kenneth Feinberg, the so-called pay-czar, struggles to collect a few scalps at the handful of TARP institutions under his domain, with the ever-intransigent AIG making headlines. This of course is meant to distract attention from the fact that everyone else (meaning the big capital markets players who were bailed out and most certainly will be bailed out again when they next get themselves in trouble) is raking it in hand over fist, and bonuses this year are set to reach the 2007 record.

In the UK, by contrast, a very serious proposal to rein in banker pay is about to be put forward. If this were the US, one would assume that this is mere showmanship, a nice bit of grandstanding for something certain to be diluted into irrelevance.

I welcome comments from UK-based readers, I have zero insight into their politics. But based on their history, there is reason to think this effort might be for real. And if so, it will show how craven US politicians are, particularly given that the banking sector is a bigger part of GDP in Britain than in the US.

As Niall Ferguson showed in his book The Cash Nexus, the reason the UK was able to succeed militarily against the much larger (GDP-wise) France was that it was a more credible borrower. It had professional (salaried) tax collectors and the tax bureaucracy was pretty clean. By contrast, France had widely-hated tax “farmers” who amounted to state-licensed buccaneers. Tax compliance was good in England, terrible in France. So England was able to borrow to finance military expenditures at a much more favorable rate. Similarly, at least until the nuttiness of the last generation, England also understood the value of being an international banking center, and again, operating under a system of rules is important to credibility. Even in the Bank of England’s worst moments in the crisis (the flailing about with Northern Rock, for instance), you can detect the sense of deep institutional memory in the remarks of Mervyn King.

In the US, by contrast, until very recently, finance had just about zero to with our dominant economic role. The US is a bloody big economy, and (was) a manufacturing superpower. It was only in the 1990s that the US as a matter of policy began trying to secure commitment around the world to opening their financial markets, which would allow the fleet of foot US buccaneers investment banks become ascendant. For instance, in the Asian crisis, the US rejected an Asian-led solution, and the draconian measures imposed by the IMF were seen in some of the “recipient” countries, particularly South Korea, as a concerted program to remake the economy along US lines.

So the US does not have the value of sound banking as part of its collective memory; even worse, Wall Street seems to have no institutional memory whatsoever (as someone who has worked in and around the industry for 30 years, I am simply gobsmacked at the high level of ignorance among current incumbents of pretty recent train wrecks in the industry).

So informed comments from UK based or UK knowledgeable readers are particularly encouraged. From the Telegraph:

Bankers who are paid “unjustifiable” multi-million-pound bonuses face having their contracts ripped up and their banks fined, under new legislation to be unveiled this week…

The bill will give the Financial Services Authority (FSA) the power to cancel bankers’ contracts to prevent them receiving payments that it believes would cause instability in the financial system.

The FSA could stop bankers receiving bonuses that it believes are too high, or cancel remuneration packages that it thinks reward undue risk-taking.

In another planned law, customers will get new powers to join forces and take banks to court over “rip-off” charges.

They will be able to mount US-style “class actions” to force banks to pay damages more quickly – potentially to hundreds of thousands of customers at the same time…

In an interview with The Sunday Telegraph, Alistair Darling, the Chancellor, said that the culture of banking had to change and that bankers had to see themselves as “fellow citizens” who had been bailed out by the taxpayer…

“Bonuses have been a symptom of the excessive behaviour of some banks over the last few years and even over the last few months,” said Mr Darling…

“I’ve always been clear that I’m not against people being rewarded for hard work. What has gone wrong is where people were paid to take excessive risk and they were rewarded to do things that ultimately brought the banking system crashing down.”

The new rules will come into force next year…
The rules will apply to all British banks …. It will also apply to the British operations of global investment banks such as Goldman Sachs and JP Morgan. Remuneration packages will have to be renegotiated if the FSA believes they breach the regulator’s pay code, which will demand that a higher percentage of remuneration is paid in stock and that compensation is deferred for a longer period.

Mr Darling said the FSA’s powers would not be retrospective and would apply only to all new contracts. That means it will have no effect on this year’s bonus round…

The Chancellor dismissed fears that the laws would make Britain a less attractive place in which to invest, and could threaten London in particular as a global finance centre.

“Our starting point is we want London to remain as the world’s foremost financial centre,” he said. “We want this to be a good environment where firms from all over the world come and do business. But part of that is to make sure that there is a tough supervisory and regulatory regime.”

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22 comments

  1. BigBadBank

    It is entirely for real; the writing was on the wall when Lord Turner started talking about banks not ‘optimising social utility’.

    The political situation is highly relevant; in the UK we are due an election in a few months (likely in May), and the result will probably be determined by whether the country blames it’s woes on the Labour government’s lax regulation of the City (Conservative party will win), or blames the City itself (Conservatives, the natural party of the City, may lose). People are very angry (in an understated British way) and it is in the governments best political interest to enact strong regulation.

    Alistair Darling’s desire for ‘London to remain as the world’s foremost financial centre’ is as sincere as Tim Geithner’s avowal of a ‘strong dollar policy’.

  2. a

    “Mr Darling said the FSA’s powers would not be retrospective and would apply only to all new contracts. That means it will have no effect on this year’s bonus round…”

    So it’s all for show, to get the government into the next election with the appearance that it is doing something.

    Bonuses will be deferred and in stock. They still will be huge.

  3. Thomas E

    It is a creditable threat. The UK goveernment has a large enough majority to pass the legislation, and has already passed legislation to enable it to break up the banks, create a special resolution regime where it has powers to do practically anything, prioritise repayment of government bailouts over other creditors, and nationalise any bank it choses.

    The EU commission also has widespread powers, and has been flexing its muscles to force the UK government to break up the huge insolvent monopoly banks like RBS, Barclays and LLoyds.

    There are quite stringent moves afoot to institute widespread reform, and because the UK government has instituted laws alowing it to take any bank into public ownership, banks have to be a lot more circumspect of the government. There is widespread populist anger against the banks.

    Even before the banking crises, there were over a million cases brought against the banks on the issue of late payment charges, for example. Which is the reason that the government is introducing class actions against banks, because there is a widespread feeling that the banks were taking the piss.

  4. attempter

    In another planned law, customers will get new powers to join forces and take banks to court over “rip-off” charges.

    They will be able to mount US-style “class actions” to force banks to pay damages more quickly – potentially to hundreds of thousands of customers at the same time…

    If they’re serious about that, they are indeed heading 180 degrees in the opposite direction from that of America, where the Kafkaesque Private Securities Litigation Reform Act keeps being used to prevent such suits from going to trial.

    A week ago Gretchen Morgenson wrote about the auction rate securities fraud legalized by this law.

    http://www.nytimes.com/2009/11/08/business/economy/08gret.html

    (That bipartisan law was passed in 1995, one of many results of the Emanuel-engineered 1994 Republican takeover. Now he’s doing his best for a repeat in 2010. He’s just the gift that keeps on giving.)

    By contrast, France had widely-hated tax “farmers” who amounted to state-licensed buccaneers.

    Sorry to go off-topic, but we should never miss an opportunity to remind ourselves that the health racket bill before us, by forcing us to buy worthless, expensive junk policies from a private racket with no cost competition or actual regulation, will hijack the IRS to be its buccaneer, its hired goon, to convey this loot.

    All this is just one of many ways corporatist America is looking more and more like Ancien Regime.

    Wall Street seems to have no institutional memory whatsoever (as someone who has worked in and around the industry for 30 years, I am simply gobsmacked at the high level of ignorance among current incumbents of pretty recent train wrecks in the industry)

    Regarding regulation, it’s also gobsmacking how many people have evidently paid zero attention to the recent history of bank regulation, and who expect these same corrupt and captured politicians and regulators to “regulate” the health insurance racket.

    Anyone who’s been paying attention knows this won’t be done, no matter what the bill says.

    1. Timo

      While I believe that they might be as serious about the “rip-off” charges as politicians can be, I wouldn’t really break out the champagne yet. The current review/suit against excessive or unfair bank charges (which has been going for for several years by now) has been stuck in the judicial process for some time and it appears it’ll be dragging out even longer than expected.

  5. Timo

    Another UK reader here – yes, I also think that this shaping up to be a credible attempt at banking (pay) regulation.

    As several other readers already pointed out, we’re due an election sometime in the first half next year so there is a certain need for politicians to be seen to “do something”. I’m feeling a little cynical about this but I’ll reserve my judgement until after the election to see how much is left of these legislative threats.

    Another point that hasn’t really come up yet is that in the UK, the City was making massive contributions to overall tax revenue and GDP, far above what you’d normally expect. Figures of around 20% of GDP come to mind but I haven’t got any figures to hand to back this up.

    Obviously that’s not really the case at the moment but given that successive governments pretty much bet farm and country on becoming a dominant player in the service industry, it makes sense that the government is doing what they can to ensure they’ll get the financial services industry back on their feet given the fall in tax revenue and the massive amounts of debt that the government is currently incurring.

  6. RebelEconomist

    As British politicians go, Alistair Darling, a low-profile figure with apparently little ambition for a bigger role, seems relatively straightforward, so I suspect that he will back off if he believes that this is undermining London as a financial centre. Actually, I would be worried if the government are successful at significantly restraining financial sector bonuses – it may well be a sign that other countries consider the finance industry more trouble than it is worth, and have little interest in poaching it.

    1. Richard Smith

      Possibly more trouble than it’s worth, yes. Makes this bill an exercise in bluff calling.

      It’s also possible that being seen to have somewhat heavier touch regs might actually be a better selling point for a financial centre; rather than the light touch ones that seem to be implicated in the mess of the last couple of years. It will be interesting to see how that pans out.

  7. Richard Smith

    Can’t tell yet how this will work.

    How will FSA determine the link between bonus and risk? FSA has always been reactive rather than proactive: if they are going to wait for a bank to get into trouble and only then pronounce on the bonus level, it isn’t going to be much of an improvement on where we are now. Banks will have a variety of ways of working around these restrictions no doubt.

    Still, might be a noble effort; we will see. Not an Obamoid dilution process as the thing gets into law,I hope.

    Political background – there is still that tug-of-war between FSA and BoE, which won’t be settled until the election, at the earliest.

    It boils down to sorting out the mess Gordon made with his tripartite regulatory system when the BoE became independent 10 years ago; and salvaging what Yves calls the institutional memory of BoE, while it still has some – it certainly never got transplanted to FSA or Treasury at any point in the last 10 years. I suspect the resolution of NRK would have been a lot quicker if the whole idea of having to handle a bust bank hadn’t fallen down the cracks when Gordon dreamed up his new dispensation.

    Broadly, it looks as if Labour would give a bigger role to FSA, Tories favouring a bigger role for BoE.

    BoE’s track record, if I remember it right – last bank run before NRK was in 1866; last bank rescue before NRK was Slater-Walker in the mid 1970s. Seems like a pretty good record of proactive bank regulation. Given the orthodoxy about deregulation, a hobbled BoE might have done no better than anyone else in the last ten years, so there is a halo effect there perhaps. My own unwarranted suspicion is that getting the pugnacious and confident BoE out of the bank regulation business might have been a response to an American steer.

    Another dimension is Europe – UK seems now to be hewing more to a Euro line on banks now, after a year of making its mind up. Two propellants away from the US – push from the dismal and obviously wrong Obama regulatory initiatives; pull from Europe, who have some rules of their own that UK must acknowledge.

    Since Big Bang the juggling act in UK financial regulations has always been about not putting off the Americans and making them take their lovely banks away; that’s not such a strong factor now, since only GS look likely to be paying much corp tax to the UK for the foreseeable future (this crash will be a monster hit to tax revenues whether or not we have dozens of banks in London). And much of the employment the industry traditionally generated is trickling away to India anyway, so that argument doesn’t have its old traction either.

    The even bigger picture for us is that time may now at last have been called on the UK’s post-industrial business model of “service industries”; more properly, “ineptly run casinos with overpaid croupiers”. If that sea change really is starting to happen, I wonder what we do next.

  8. Hoi Polloi

    Unless the UK the US Bank lobby is much more powerfull. Look at all the ex Goldman alumni in the past and current government.
    TREASURY DEPARTMENT
    Henry Paulson: Served as Treasury Secretary under President George W. Bush.
    Was CEO of Goldman from 1999 to 2006.

    Robert Rubin: Served as Treasury Secretary under President Clinton.
    Previously, he was co-chairman of Goldman from 1990 to 1992.

    Robert K. Steel: Served as Under Secretary of the Treasury for Domestic Finance, the principal adviser to the secretary on matters of domestic finance and led the department’s activities with respect to the domestic financial system, fiscal policy and operations, governmental assets and liabilities, and related economic and financial matters.
    Retired from Goldman as a vice chairman of the firm in 2004, where he worked as head of equities for Europe and head of the Equities Division in New York.

    Mark Patterson: Chief of Staff to Secretary Tim Geithner
    Was director of government affairs at Goldman.

    Dan Jester: Key adviser to Geithner, who played a key role in shaping the takeover of Fannie Mae and Freddie Mac.
    Was strategic officer at Goldman.

    Steve Shafran: Adviser helping to shape Treasury’s effort to guarantee money market funds.
    Was expert in corporate restructuring at Goldman.

    Kendrick Wilson: Brought in to advise former Treasury Secretary Henry Paulson, another Goldman alum — after a personal call from his old Harvard Business School classmate, George W. Bush — to advise him on how to fix the financial markets. Paulson brought Wilson to Goldman in 1998 from Lazard Freres. Before that, Wilson was president of Ranieri & Co., which was established by Lew Ranieri. While at Salomon Brothers in the 1970s, Ranieri pioneered mortgage-backed securities, the exotic financial instruments that helped stoke the mortgage bubble. In other words, the man brought in to fend off a financial crisis appears to be a protege of one of the men who helped cause it.
    Was senior investment banker at Goldman.

    TARP
    Neel T. Kashkari: Appointed by Paulson to oversee the $700 billion TARP fund and was considered Paulson’s right hand man during the crisis, all at the tender age of 35. Kashkari was criticized for the lack of oversight of the funds disbursement, which he said would have been impossible since the funs are fungible. This assertion has been largely refuted by Neil Barofsky, the Special Inspector General for the Troubled Asset Relief Program. Kashkari was also responsible for recruiting Reuben Jeffrey.
    Was technology investment banker for Goldman in San Francisco from 2004 to 2006.

    Reuben Jeffrey: Selected by fellow Goldman alum Kashkari as the interim chief investment officer for the bailout. He was formerly the chairman of the CFTC, a role currently held by fellow Goldmanite Gary Gensler, as well as Under Secretary of State for Economic, Energy, and Agricultural Affairs.
    Was executive for 18 years at Goldman, beginning in 1983.

    Edward C. Forst: Left his post as executive vice president at Harvard to serve as an advisor on setting up TARP, but has since returned to the school.
    Was global head of the Investment Management Division at Goldman for 14 years.

    FEDERAL RESERVE
    William Dudley: President of the Federal Reserve Bank of New York.
    Was former chief economist and advisory director at Goldman where he worked from 1986 to 2007.

    Stephen Friedman: Was chairman of the Federal Reserve Bank of New York until May 2009, when he was pressured to resign after buying Goldman shares in December and January. Previously, he was director of President George W. Bush’s National Economic Council.
    Joined Goldman in 1966 and was co-chairman from 1990 to 1994.

    COMMODITIIES FUTURES TRADING COMMISSION
    Gary Gensler: Appointed by Obama to head the CFTC. This was the commission headed by Brooksley Born in the late 1990′s, when Alan Greenspan and Robert Rubin overruled her attempts to regulate credit-default swaps; fellow Goldmanite Reuben Jeffrey also held this position. Gensler worked in the Treasury Department as Assistant Secretary of the Treasury from 1997-1999 and as Under Secretary from 1999-2001, a position he received from Lawrence Summers.
    Was partner in Goldman from 1979-1996

    OTHER
    Sonal Shah: Appointed to Office of Social Innovation and Civic Participation and an Advisory Board Member for the Obama-Biden Transition Project in 2008. Shah had previously held a variety of positions in the Treasury Department from 1995 to early 2002.
    Was a former Vice President at Goldman from 2004 to 2007.

    Joshua Bolten: Former chief of staff with the Bush administration as well as former director of the Office of Management and Budget until 2006.
    Was executive director of Government Affairs for Goldman Sachs from 1994 to 1999. Bolten was instrumental in recruiting his fellow Goldman alum Henry Paulson as Treasury Secretary.

    Jon Corzine: A strong supporter and political ally of Obama, Corzine is currently the governor of New Jersey. Before being elected governor, he served as the New Jersey representative to the U.S. Congress from 2001-2006, where he served on the Banking and Budget Committees.
    Began working for Goldman in 1975 and worked his way up to chairman and co-CEO before being pushed out in 1998.

    Robert Zoellick: Currently serves as president of the World Bank and previously was deputy secretary of state.
    Was previously a managing director at Goldman, which he joined in 2006.

    James Johnson: Was involved in the vice-presidential selection process for the Obama campaign and served as president and CEO of Fannie Mae.
    Board member of Goldman.

    Kenneth D. Brody: Was former president and chairman of the Export-Import Bank of the US.
    Worked for Goldman for 20 years, founded and heading up its high-technology investment banking group and leading the firm’s real-estate investment banking group.

    Sidney Weinberg: Served as vice-chair for FDR’s War Production Board during World War II.
    The head of Goldman from 1930 to 1969, nicknamed “Mr. Wall Street,” he worked his way up at the firm after starting as a $3-a-week janitor’s assistant.

    LOBBYISTS
    Richard Gephardt: Was House Majority Leader from 1989 to 1995 and House Minority Leader from 1995 to 2003.
    His lobbying firm was hired by Goldman to represent its interests on issues related to TARP.

    Michael Paese: Former top staffer to Rep. Barney Frank, the chairman of the House Financial Services Committee.
    Is Goldman’s new top lobbyist. He will join the firm as director of government affairs – last year, that position was occupied by Mark Patterson, now the chief of staff at the Treasury Department. Paese has swung through the revolving doors several times – he previously worked at JPMorgan and Mercantile Bankshares and was senior minority counsel at the Financial Services Committee.

    Faryar Shirzad: Former top economic aide to President George W. Bush and Republican counsel to the Senate Finance Committee.
    He now lobbies the government on behalf of Goldman Sachs as the firm’s Global Head of the Office of Government Affairs.

    Richard Y. Roberts: Former SEC commissioner.
    Now working as a principal at RR&G LLC, which was hired by Goldman to lobby on TARP.

    Steven Elmendorf: Former chief of staff to then-House minority Leader Rich Gephardt.
    Now runs his own lobbying firm, where Goldman is one of his clients.

    Robert Cogorno: Former Gephardt aide and one-time floor director for Steny Hoyer (D-Md.), the No. 2 House Democrat.
    Works for Elmendorf Strategies, where he lobbies for Goldman and Citigroup.

    Chris Javens: Ex-tax policy adviser to Iowa Senator Chuck Grassley.
    Now lobbies for Goldman.

    GOVERNMENT – GOLDMAN
    E. Gerald Corrigan was president of the New York Fed from 1985 to 1993. He joined Goldman Sachs in 1994 and currently is a partner and managing director; he was also appointed chairman of GS Bank USA, the firm’s holding company, in September 2008.

    Lori E Laudien: Former counsel for the Senate Finance Committee in 1996-1997
    Has been a lobbyist for Goldman since 2005.

    Marti Thomas: Executive Floor Assistant to Dick Gephardt from 1989-1998, he went on to serve in the Treasury Department as Deputy Assistant Secretary for Tax and Budget from 1998-1999, and as Assistant Secretary in Legal Affairs and Public Policy in 2000.
    Joined Goldman as the Federal Legislative Affairs Leader from 2007-2009.

    Kenneth Connolly: Was staff director of the Senate Environment & Public Works Committee).
    Became a Vice President at Goldman in 2008.

    Arthur Levitt: The longest-serving SEC chairman (1993 to 2001).
    Hired by Goldman in June 2009 as an adviser on public policy and other matters.

    1. Doug Terpstra

      YUCK! What a slimy, tangled web of incest! No wonder there are no investigations or charges; they are all family relatives.

  9. Doug Terpstra

    If I may, this cynical Yank says “not bloody loikley”. Did not protection racketeer Joe Cassano of AIG operate with impunity from the City of London under the powdered nose of the FSA? And does he not still luxuriate in that den of iniquity? Has the UK’s equivalent of our toothless DOJ brought charges against paisano Cassano or any other malefactor in the sordid financial sewer? (Has anyone checked for payoffs to Cassano from Government Sachs?)

    Post-Obama, I’m almost tempted to rekindle the sodden hope that the Brits can effect real reform because they do not suffer the institutionalized naked bribery and electioneering at the heart of all of our Yankee paralysis. And having gone through their own financial-military overreach and subsequent liquidation—just like Spain, Netherlands, France, etc. before them—maybe the UK can help drag us out of our imperial death spiral. It all depends on the extortionist leverage the banks still have; perhaps only total collapse will be necessary for substantive reform.

  10. Damien

    Very possible, one last hurrah from the doomed Labour government. It’s a vote winner and would be quite tricky for the incoming Tories to repeal. Labour will try to paint them as fatcats and in the pockets of bankers. If the Tories start talking about the legislation being unfair it plays into Labours efforts to paint Cameron et al as Eton educated Little Lord Faulteroys.

  11. Paul Handover

    “I welcome comments from UK-based readers, I have zero insight into their politics.”

    Sort of sums up my feelings and until September 2008 I was a resident Englishman, born and bred. From the perspective of North America it seems as though the UK shares the same disconnect as the US. That the citizens of these countries find their governments fiddling while Rome burns.

    UK public spending is about 50% of UK GDP, an absolutely terrifying situation. The only path for meaningful change is for politicians to recognise that they are pushing their ‘thinking’ classes to the point of serious rebellion. That seems more likely to come about in the US than in the UK. I sense that in the US that thinking class is getting very, very angry.

    Just my two-penny worth.

    PH

    1. Richard Smith

      For my part the thinking in the UK feels slightly less diseased than in the US, though the proof will come over the next year or two. This bonus bill looks like a last hurrah for Labour; unless there’s a big surprise, they won’t be around long after it goes into law.

      On the other hand I must admit to mistrusting the Tories on reg. reform, Osborne particularly.

      The apocalyptic state of public sector finances may override everything, as you remark. If it provokes some upscale version of what happened in Iceland, the fsllout will make bank regulatory reform look like a quaint side issue.

      1. Paul Handover

        One of the authors on the Blog is Chris Snuggs. He has, from time to time, written some material on his own website about a fictitious underling, Perkins, to a UK cabinet minister. While this piece is quite old, it does reveal what many English citizens feel, that whatever Party is in power, it’s all a game.

        http://nemo-insula.net/public/politics/perkins/subprime.htm

        Apologies to our American cousins who will probably find that this style of English humour leaves them cold.

  12. William

    As a cynical UK voter I will be (probably pleasantly) surprised to see this producing anything effective. We are only a few months from an election now, so anything the Government says has to be read in that light. They have the majority in Parliament but will they find that they run out of time to put the legislation through? There is talk that the Government may call an election for March (i.e dissolving Parliament in February) to avoid having to bring in the 2010/11 Budget before the election. As a Budget which attempts to address the fiscal deficit is likely to be very unpopular there is some logic here. We shall see.

    Richard

    The Bank of England banking supervisors moved pretty well en masse to the FSA in 1997 so I think a fair amount of the institutional memory can be said to have moved with them (and the Bank have always had senior level representation on the FSA board).

    Subsequent to Slater Walker and Co.’s demise in the 1970s, we in the UK also had Johnson Matthey rescued in the 1980s, the failures of BCCI and Barings in the 1990s as well as a little-publicised support operation of various smaller institutions following the recession of the early 1990s, so I think the history of UK banking supervision in recent decades has been more chequered than you suggest.

    Would moving supervision back to the Bank make much difference? I doubt it, as it would be largely a matter of moving FSA staff (many of them still former Bank staff) into the Bank.

    To what extent the FSA should be blamed for what happened in the UK is an interesting question. One of my concerns is that there does not seem (at least in the public domain) to have been any really serious enquiry into what went wrong and why. Until there is I am inclined to argue that any remedy will be premature and risk being inappropriate.

    1. Richard Smith

      William, thanks, good reminders re BCCI (giant ponzi), JM (daft loans to crooks) and of course Barings (unsupervised trader). You are right, it’s been a bumpier road than I was suggesting. Those are all generic supervisory screw ups of a kind we are now very familar with from the US or elsewhere.

      Waiting until there’s a run is terrifying though. The old style BoE had a good track record of being quick off the mark (OK, when its supervision failed, those are the ones you will hear about). Admittedly it was caught flat footed by Barings but it almost pulled off a rescue in a weekend. Paradoxically that failure was part of the justification for the change in ’97. I don’t think the change was an improvement, and it’s really the decisiveness about intervention that is the piece of institutional memory that I miss.

      It took a run on Northern Rock to get some action. That seems too slow to me. The whole NRK fiasco was rerun again with HBOS, whose funding model was just as obviously shot as Northern’s by Sep 2007, but staggered on for another year, and then took out Lloyds as well, by way of a shotgun wedding.

      That looks like two botched interventions. I too would like to see an enquiry. With this election in the way I don’t see how it will happen.

  13. Bill Kruse

    It will prove to be no more than cosmetic tinkering. You’ll only frighten the privately-owned banks by creating serious competition to their collective monopoly by offering a genuine alternative, one in which any interests or profits generated are returned to the community that earns that interest or profits, denying the existing privately owned banking system to cream off the profits from the community’s collective endeavours. You can only really threaten privately-owned banks with a public educated in these matters and the option of publicly owned banking alternatives.

    BB

  14. Damien

    These things are easy to get around anyway e.g my salary is £100k so the Gov is happy although my offshore service company may charge your offshore legal entity a consultancy fee.

  15. Tim Coldwell

    Maybe a new tax rule that made any pay (salary or bonus) greater than that of an MP a non-deductible expense for the regulated financial services entity (aka bank, insurance company etc) would be popular with shareholders, legislators (aka MPs) and the population at large (aka the other tax payers).

  16. Fremsley

    Like William, I am a cynical UK voter and I would generally endorse his viewpoint.

    It is very difficult to understand what any of this means at the moment because there is so much skirmishing for position beneath the rhetoric. King at the BoE is clearly positioning to take back many of the powers originally lost to the FSA. The timing of his comments about breaking up the banks were a naked attempt to trump the FSA’s report on the handling of banks deemed ‘too big to fail’. And whilst I support much of Turner’s current thinking and his recommendations, he too has an incentive to think the unthinkable (or at least announce the unannouncable) in order to preserve the perception that the FSA are a unit capable of controlling financial excess.

    The reason I am skeptical is that all of this radicalism is a far cry from the situation before the crisis (which suggests the euphoria around financial bubbles may encourage institutional memory loss, which is only recollected after the walls come tumbling down). During the boom, the FSA were a relatively supine organisation, whether measured by their light touch approach to the banks or their famously low criminal prosecution rates for insider trading (just one case between 2004-7). Meanwhile at the BoE, King marginalised the ‘stability’ division: to ‘get on’ an employee would orient their career towards Monetary Policy.

    As for the Labour government, a month or so ago a report written by the CRESC research centre emphasised the connections between the UK’s political classes and the financial sector, and the problem of regulatory capture (http://www.cresc.ac.uk/publications/documents/AlternativereportonbankingV2.pdf). At the time, it seemed a fairly accurate representation of the government’s thinking on financial reform, given Darling and other senior official’s involvement in – and broad endorsement of – the Bischoff and Wigley reports. The CRESC report now seems out of touch with government’s current thinking.

    With an election on the horizon it may be too soon to tell whether this sudden volte face is mere populist positioning. Certainly the current government have little to lose – they are way behind in the polls and need to pull some kind of rabbit out of the hat if they are to stand any chance of re-election. On the positive side, unlike the US, we have less innate hostility to the State intervening in the market on these matters. It will also be politically difficult for the Conservatives to repeal such reforms, should Labour make good these recent threats. There are few obstacles in Labour’s way – bar the wrecking of their reputation within certain parts of the financial community.

    But that’s a big sacrifice for a government that have put so much work into courting the sector. And for that reason the jury’s out until we see whether these plans are part of a concerted programme to exert more democratic control over the financial sector, or an artful rhetorical foil designed to outflank the Tories.

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