FinancialGuy Writes!

If ever there was a demonstration that “light-touch” regulation of financial firms has not been a great success, this week has been it.

Over the years, we have heard huge amounts from the banking sector about how they are competent to regulate themselves. The fact that many governments have agreed and let them get on with it demonstrates the influence banks have. To then need bailouts, government and taxpayer assistance and get it when things go wrong shows true power at work.

Two stories this week from the UK show just how far some banks and their staff have gone from the straight and narrow.

The first was this about Barclays and their manipulation of LIBOR. In time, I’m sure there will be several other banks fined over this. It takes two to tango and I’d bet there was a roomful of dancers.

The second was this mis-selling of loan products to small businesses by four banks (including Barclays again).

In large and complex organisations it must be near impossible for the people at the top to really know and understand what is going on in all parts of the business. For what it is worth, I think it is hard to hold upper management to blame for the incidents. However, corporate culture starts at the top and works it’s way down. These episodes are not glowing endorsements of British bankers. One can only presume that there are competitive pressures that lead staff to do “whatever it takes” to make money. Apparently that includes colluding with other businesses to rig interest rates and selling unsuitable products to small businesses.

They must be so proud of themselves as they overlook the Thames from their penthouse apartments.

I am, of course, being selective. A snapshot of news from the last few weeks could have lead me to wag my critical finger at bankers in Spain. Or Greece. Or Cyprus it seems. Perhaps Slovenian bankers are next…?

If you can spot a trend here, you might be right. Perhaps the problem lies with the bankers?

Historically, the role of a bank was the prudent management of money. Banks are supposed to be careful, conservative places. No more it seems.

The proposed banking union contains elements relating to the regulation of large multi-national banks. I hope there are plans for it to have real teeth. The banking union is an opportunity to regulate up into the space above national jurisdictions where globalised businesses dominate the space.

The two stories I mentioned above involve some pretty substantial fines. In the first, Barclays was fined some GBP290 million. In the second, the total costs to the banks are estimated at over GBP1 billion. Those are the kinds of staggering numbers that the regulator proposed within the banking union will need to be able fine a company if it is to really have an impact.

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