Insurance Post

Banking reform: reports galore promised over the next couple of weeks but will they get us any further foward?

Those following the debate about reform of the regulation for the banking and financial services sector are promised a wheelbarrow load of reports over the next couple of weeks: plenty of summer holiday reading.
Today, we will see the report from Sir David Walker regarding the banking governance. This promises to attract alot of headlines and comment but, if the leaks about it are correct, offer very little of genuine substance. It will suggest better 'training' for directors, more 'powers' for non-executives in particular to challenge management decisions and more 'transparency' over pay and bonuses. This doesn't seem to amount to much to me. Indeed, it offers little more than a description of what we have at the moment.
Did the directors of Royal Bank of Scotland really lack experience and knowledge of banking and the other financial services sectors that formed the core of RBS's business? Just what training could have equipped them better? Did they really not understand that a board of directors can out-vote a strong chief executive if it has a mind to? David Walker's report is going to have to go alot further than that if it is really to impress anyone.
As to transparency over pay, I am not convinced this alone will be of much benefit. Has the huge media coverage of Goldman Sach's likely bonuses payments this year changed anything? It isn't transparency that is the issue, it is the far more complex relationship between risk and reward and the potentially distorting effect of excessive incentives that is the crux of of the issue. Dealing with that is not about transparency but about how far we want regulators to control remuneration.
Inevitably, the European Union seems to have grasped this latter point as it continues its huge assault on the regulatory scene. Its latest report links remuneration to the new capital structures it would like to impose on banks and financial institutions and these capital structures, in turn, are linked to the risk that the institutions are potentially exposed to. This seems much more likely to be the real battleground for the debate about remuneration and incentives than mere transparency.
Then we mustn't forget the Treasury Select Committee. This has been strangely quiet in recent weeks but is promising up to three new reports before the end of the month, one of them dealing with the outstanding issues from its major inquiry into the causes and consequences of the banking crisis, namely regulatory reform. The committee has taken a long run at producing this report, giving it the luxury of seeing what others here in Europe and the USA have proposed. It could have a major impact on the course of the debate.
The real danger - and this is a slightly cynical point of view - is that the contradictory approaches advocated by all these reports will lead to a reform paralysis which will be exploited by those who do not want any new rules, controls or restrictions imposed on what they do. That is simply not an option. Governments may have been able to prop up a collapsing banking system once but they cannot afford to do it twice so we must find a way of ensuring that it is never allowed to hurl itself towards the cliff-edge again.
  • LinkedIn  
  • Save this article
  • Print this page  

You need to sign in to use this feature. If you don’t have an Insurance Post account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: