This needs saying and the politicians should be made to read it! And, please, someone, translate it into French and German, before they ruin us.
Christina
TELEGRAPH
4.9.09
G20: Bankers need to grow up - not be chained
G20 ministers should resist the urge to impose tougher rules and salary caps, argues Martin Vander Weyer.
I met a veteran oil man this week who described the thrill of living through four cycles of the oil price, huge advances in technology and the successful extraction of oil from some of the world's most difficult places. He was even more excited about the future – and as if to emphasise his point, one of the leading oil companies, BP, yesterday announced the discovery of a giant new oil field, deep beneath the Gulf of Mexico.
I don't meet many bankers these days who wax lyrical about their industry or their careers in that sort of way. Though the senior ones have lived through previous boom-busts and extraordinary market changes, their collective experience has not made them all the more ready for the next challenge. On the contrary, the current bust has left many banks flat on their backs, surrounded by regulators and politicians prescribing fearsome treatments to keep them alive.
In a better world, big banks would have the same resilience, the same ability to position themselves for the long-term while coping with the short-term, the same responsiveness to changing customer demands, as big oil or big pharma or big supermarkets. But how do they get there from here?
That's a topic the G20 finance ministers will address in London this weekend – but in a mistrustful rather than supportive way. In government circles, bankers are now regarded as incorrigibly greedy and ungrateful for the taxpayer largesse that has kept them in business. On the table will be competing proposals to restrict and humble them in a variety of ways, particularly in relation to how much they pay themselves.
Already there are widely accepted proposals to slap extra capital requirements on banks whose remuneration policies look lavish or too short-term. The French delegation will push Nicolas Sarkozy's proposals to put an outright cap on bonus payments unless the bankers sign up to strict new codes of conduct. The Germans will argue that if there have to be Anglo-Saxon-style bonuses, they should be deferred for as long as possible.
And our own Lord Turner, the increasingly outspoken [and failed -cs] chairman of the Financial Services Authority, was arguing last week that if extra capital requirements don't do the trick, "Tobin taxes" should be imposed on financial transactions to take out a slice of the profits that fuel mega-bonuses. This week he went further, no doubt putting the fear of God into some bankers, by proposing that they must draw up "living wills": adopt simpler corporate structures – rather than the complex, offshore-based, tax-minimising arrangements they usually favour – to make it easier for their affairs to be wound up in the event that the life-support system has to be switched off. It would also make them pay more taxes while they are still alive. [The man is venting his spleen in advance at the Tories for their announced proposal to make the FSA - which under Turner failed to do its job - subordinate to the Bank of England. He is a rogue elephant causing mayhem whenever he opens his mouth which, unfortunately, is many times a day-cs]
Behind that proposal is the wish to avoid a debacle like the bankruptcy of Lehman Brothers, which will take several years and many millions in lawyers' fees to unravel. But this and most of the other ideas likely to be bandied round this weekend represent a negative, fearful approach to the revival of the financial sector, which is central to the revival of the wider economy.
The urge to strangle bank profits perhaps comes from a subliminal and understandable urge to strangle errant bankers, but it has to be tempered with a desire to see them return to business as usual. Extra regulatory and tax costs will be passed on to corporate borrowers, making it tougher for companies to finance themselves as the recovery advances. And none of the proposals, either from Turner or the Europeans, are designed to help London retain its pre-eminence as a global financial centre, with all the benefits that brings to the British economy.
It makes sense to create a new system of capital requirements that discourages banks from trading excessively in what Warren Buffett called "weapons of financial mass destruction". For those giant banks that have had to be rescued by taxpayers, it may make sense for them to be broken into their component parts, to re-emerge as simpler, specialised businesses – some in partnership form. It would be good too if the Bank of England (or the FSA, until the Tories abolish it) scrutinised the skills and experience of British banks' senior managers and board members.
But most of all, it would be a good thing if the banks were encouraged to take responsible control of their own destiny again – and to conduct themselves as the best companies in other major industries do. That would mean concentrating not only on better risk management but also on intelligent man-management that makes executives want to stay and share in long-term success, rather than jump to the next employer at the first call from a headhunter. It would mean aligning the interests of managers with those of shareholders and customers, so that all prosper together. It would mean reviving old-fashioned ideas like collegiate trust and loyalty. It may sound far-fetched, but there's no reason it can't happen – so long as the banks are not confined to regulatory straitjackets and laden with punitive taxes. That, I fear, will only make them behave worse again.
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Martin Vander Weyer is editor of 'Spectator Business'
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