Can You Change The 'Banking Culture' ?

[Razgovory]

Governments can use the carrot to incentivize actions or the stick to disincentivize actions where the government feels the greater good is helped by doing so. This power can easily be misused but that doesn't mean it always is.

Even when not deliberately misused, such efforts often fail due to unexpected consequences.

So?  That could be said about anything.

You're probably not really a fool--why do you enjoy playing one here?

I do no share you ideology.  You answer is predicated on an ideological conceit.

[Tamas]

I'm not sure that point is bullcrap, but pretty much every system that's been implemented on a wide-scale, including communism, relies to a great extent upon greed.

No. It relies on selflessness, and thus, it fails.

Same reason why government interference with the economy, and social engineering, fail everywhere but the most disciplined and advanced states. Just look at the present state of the EU.

On the other hand, laissez-faire has never produced much in the way of positive results either, but is far more brutal than interventionist systems.

I would say that it produced the basis for post-WW2 welfare states. And now we will return to a system more akin to it, after the imminent collapse of European social-liberalism. I just hope it will be a purer form of liberalism, and not autocracy.

[Martinus]

Governments can use the carrot to incentivize actions or the stick to disincentivize actions where the government feels the greater good is helped by doing so. This power can easily be misused but that doesn't mean it always is.

Even when not deliberately misused, such efforts often fail due to unexpected consequences.

So?  That could be said about anything.

You're probably not really a fool--why do you enjoy playing one here?

I don't think Raz's response is that of a fool - in fact yours is. If we did not do things because of unexpected consequences, we would not do anything.

[Sheilbh]

I would say that it produced the basis for post-WW2 welfare states. And now we will return to a system more akin to it, after the imminent collapse of European social-liberalism. I just hope it will be a purer form of liberalism, and not autocracy.

I think social democracy with liberalism was the basis of all mixed market economies - which include the entire developed world.

I don't think you can change the culture of banking.  I think you can regulate them heavily to stop things like the PPI mis-selling, the mis-selling of products to small businesses or the LIBOR scandal.  I think Martin Wolf's interesting on this because he was part of the banking reform committee we had over here:

Banking reforms after the Libor scandal
July 2, 2012 11:49 am

On June 14 2012, I wrote a column [Two cheers for Britain's bank reform plans] on the government's plans to implement the recommendations of the Independent Commission on Banking, chaired by Sir John Vickers, of which I was a member.
I noted that the government had rejected the Commission's recommendations on several points, in favour of the banks. After the scandal of the deliberate misreporting of the London Interbank Offered Rate (Libor), these concessions must now be reconsidered.

In particular, I noted:

"The government has rejected proposals from the ICB that equity should fund at least 4 per cent of the balance sheet of systemically important banks, instead of the 3 per cent proposed by the Basel committee. The government also proposes to let ring-fenced banks offer "simple derivative products" to its clients, contrary to the ICB proposal that these banks act as agents only for their clients. In addition, it has agreed to waive loss-absorbency requirements for foreign subsidiaries of globally significant international banks, provided these entities are believed to pose no risk to the battered UK taxpayers. Finally, the government plans to exempt banks with mandated deposits of less than £25bn from the obligation to set up a ring-fenced retail bank."

My interpretation of the Libor scandal is the obvious one: banks, as presently constituted and managed, cannot be trusted to perform any publicly important function, against the perceived interests of their staff. Today's banks represent the incarnation of profit-seeking behaviour taken to its logical limits, in which the only question asked by senior staff is not what is their duty or their responsibility, but what can they get away with.

As my colleague John Kay, has frequently point out, such behaviour, which might seem to be the logical consequence of profit-maximisation, is incompatible with the survival of a sophisticated market economy. Without trust in the probity of those one deals with a host of potentially profitable long-term arrangements will collapse. This is particularly true in banking, Trust is not an optional extra in banking, it is, as the salience of the word "credit" to this industry implies, of the essence.

It is difficult to know how to restore not just the reality, but the perception, of trustworthiness, to this industry. But part of the answer must be a separation of the self-interested trading culture of today's investment banking from the service-oriented culture of old-fashioned commercial banking. That has always seemed to me to be a strong argument for the ring-fencing of retail from investment banking that the ICB proposed.

Some may feel that we should have gone further. Our view, in not doing so, was that a more diversified balance sheet for a group might be more stable, in a crisis.  What seems clear, however, is that the government should now be asked why it diluted our proposals on the lines I have indicated above. Does anybody now believe that the ability of the new retail banks to offer so-called "simple derivatives" to customers will not be abused? Again, do many people really trust banks to run their non-domestic banking subsidiaries in ways that do not threaten the UK taxpayer in a global crisis? Finally, does anybody really believe that the fundamental model of contemporary banking, which is to operate with the barest minimum of capital, with a view to maximising expected non-risk-adjusted returns on equity, for the benefit of bankers' remuneration, at the expense of both shareholders and taxpayers, is defensible?

I do not see the sense in starting more lengthy inquiries. Why not start by implementing the full recommendations of the one the government set up at the start of its period in office? The banking industry performs a set of vital public functions – the provision of credit and the management of money. But its culture is not that of service-oriented utilities, but rather of huge entities acting solely for their own purposes.

A full retail ring-fence, which separates the investment banking from the retail banking, plus much higher capital requirements, would be a good start. This combination would, I believe, see the disappearance of much unnecessary trading activity. Good riddance, I would say. But the UK would also have to accept that the present charging model for retail banking – free, if in credit – is also one of the reasons for the endless series of scandals. The model is broken, in the current low-interest rate environment. Banks must be encouraged to charge open fees for service, rather than make money by covert means.

Critics might well argue that the ICB should have gone further. But surely they should insist that the government should go at least as far as it did.

[CountDeMoney]

Must be interesting to live in a country where the banking industry is responsible to the government, and not running it.

[Tamas]

Must be interesting to live in a country where the banking industry is responsible to the government, and not running it.

no, it really is not.

[mongers]

Must be interesting to live in a country where the banking industry is responsible to the government, and not running it.

Which country is that ?

Gotta love this shit:
http://ukingermany.fco.gov.uk/en/news/?view=Speech&id=4616377

Gordon Brown: Mansion House speech
HM Treasury, 20 June 2007

My Lord Mayor, Mr Governor, my Lords, Aldermen, Mr Recorder, Sheriffs, ladies and gentlemen.

Over the ten years that I have had the privilege of addressing you as Chancellor, I have been able year by year to record how the City of London has risen by your efforts, ingenuity and creativity to become a new world leader.

Now today over 40 per cent of the world's foreign equities are traded here, more than New York:
over 30 per cent of the world's currencies exchanges take place here, more than New York and Tokyo combined,
while New York and Tokyo are reliant mainly on their large American and Asian domestic markets, 80 per cent of our business is international, and
in a study last week of the top 50 financial cities, the City of London came first.

So I congratulate you Lord Mayor and the City of London on these remarkable achievements, an era that history will record as the beginning of a new golden age for the City of London.

And I believe the lesson we learn from the success of the City has ramifications far beyond the City itself - that we are leading because we are first in putting to work exactly that set of qualities that is needed for global success:
openness to the world and global reach,
pioneers of free trade and its leading defenders,
with a deep and abiding belief in open markets,
champions of diversity in ownership and talent, and of flexibility and adaptability to change, and
a basic faith that from wherever it comes and from whatever background, what matters is that the talent, ingenuity and potential of people is harnessed to drive performance.

And I believe it will be said of this age, the first decades of the 21st century, that out of the greatest restructuring of the global economy, perhaps even greater than the industrial revolution, a new world order was created.
...

The previous year is quite amusing:
http://www.guardian.co.uk/business/2006/jun/22/politics.economicpolicy
including:

......
Mr Lord Mayor ten years ago there were nine separate regulatory bodies for financial services.

To meet the challenge of global markets we created a single unified FSA.

In 2003, just at the time of a previous Mansion House speech, the Worldcom accounting scandal broke. And I will be honest with you, many who advised me including not a few newspapers, favoured a regulatory crackdown.

I believe that we were right not to go down that road which in the United States led to Sarbannes-Oxley, and we were right to build upon our light touch system through the leadership of Sir Callum McCarthy - fair, proportionate, predictable and increasingly risk based. I know Sir Callum is committed to reducing regulatory administrative burdens and the National Audit Office will now look at the efficiency and value for money of our system.
....

[The Minsky Moment]

Must be interesting to live in a country where the banking industry is responsible to the government, and not running it.

That certainly isn't the UK

[CountDeMoney]

Must be interesting to live in a country where the banking industry is responsible to the government, and not running it.

That certainly isn't the UK

A boy can dream, can't he?

[The Minsky Moment]

A boy can dream, can't he?

Be careful what you wish for.
The country that probably best meets the condition of the banking industry being responsible to the government is . . . China.

Although arguably that is because there isn't a dime's worth of difference between them.

[Iormlund]

Spanish cajas were bound to regional governments. Didn't turn out that well.

[CountDeMoney]

Although arguably that is because there isn't a dime's worth of difference between them.

So kinda like here, then.

[Zanza]

Our state-owned banks did their utmost to outdo the worst private banks and only failed because of the sheer size of some of the private banks. But they certainly tried.

[Sheilbh]

We didn't have any state owned banks. After the crisis we've got two nationalised, one boardless after pressure from the BofE and only HSBC and Santander kind of independent.  Michael Foot probably never dreamt of as much

[Admiral Yi]

You're calling Banco de Santander a British bank?