 Such is the power of a baying mob. Populist fervour, albeit fanned by a media furore, called for the head of Fred Goodwin. This, as much as anything, was a reflection of the general frustration and anger of the population at their having to both pay for others’ mistakes and then to see their leaders getting away with it and, just to rub salt into the wound as well, even being rewarded for it. With this crowd there was going to be no call for “Barabbas” to let him go, but rather a mass demand for some kind of retribution. Whilst emotionally satisfying in the short term, such stories do little to actually solve the current issues, although I do admit that they are useful, and I would even say essential, to have such a totem to blame and to heap our indignation upon. The reality is that despite such media lynching, nothing of note is going to come out of it which will affect the economic malaise.
If we want to focus on something which is more creative, then it should be to ensure that this doesn’t and can’t happen again. The immediate call is for more regulation. This is typical in such populist events. For example, it took such an emotional campaign to produce legislation as ludicrous as the Dangerous Dogs Act. Perhaps we should have a Dangerous Bankers Act as well, and thus have them put in muzzles when they are out in public? They could certainly do with at least a leash.
The simplistic answer to many issues is the call for more laws and more regulation. But perhaps we are focusing on the wrong issue. It seems very easy to answer a problem with a set of tick boxes as to whether you are within the law or not. Just ask any unfortunate policeman filling out hours of paperwork about reported crimes and misdemeanours. Yes, he finds out which bye-law and sanction has been broken, and yes he can propose to prosecute, but this does little to prevent the crime actually taking place. Our legal system is not just based upon precise statute law, but in fact on a blend of the precedent of case law and our historic basis of fundamental common law as well. This provides flexibility, interpretation and above all the ability to adapt and change according to circumstances.
Perhaps therefore we should consider such elements when we are looking at our financial regulation. The baying mob, once bored with Fred’s head, will move on to other areas and one of those will be the “demand” for more effective regulation of bankers (you can hear ill-informed politicians already repeating this mantra) - more box ticking, more discipline and more bureaucrats.
None of us would disagree with the need for change and that better controls are required, but before we draft the next rule, let me propose an alternative view.
Prior to 1997 we had a different approach to banking regulation – in fact it wasn’t regulation it was supervision. You may accuse me of being a pedant but the definitions are quite clear...
Regulation - “a law, rule or other order prescribed by authority''
Supervision - “the act or function of supervising; superintendence”
But this is not just to play with words. The Bank of England did more than just regulate. It educated suggested, proposed, mentored and assisted in the development of banking structures; but it also acted to restrain and deter actions which could have been too risky or destabilising. This is supervision – a positive and constructive role - not just control by regulation. That’s not to say it was perfect, as the BCCI case illustrated - and that turned out to be an international banking and regulatory shambles. But on the whole, banking problems, including failing banks, were handled discretely and effectively with no bank runs or operational panics having to come out into the popular domain. A key element of this will be who these supervisors should be - practical experience and understanding of the industry is required – not just financial traffic wardens!
What has been apparent is that the “clip board” approach to regulation of banks has not worked and that maybe a return to the supervisory attitude would have provided a far more constructive and effective result. Our law is based upon the dictum of the “reasonable man” not the officialdom of the bureaucrat.
The recent comments from Lord Turner (Chairman of the FSA) said recently at the Treasury Select Committee “we can see a strong argument for us getting more involved in product regulation.” Sounds quite threatening but his calls for a new “macro prudential” role for a broader oversight may have a more supervisory tone to it. The Bank of England’s supervisory role ended in 1997 with the creation of the FSA, but there is no reason why such an effective and proven attitude cannot be reinstated. Sadly populist politicians will be happier fawning to the baying crowds.
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And finally.... Yet again we should appreciate the initiatives and dynamism of the Americans in the face of adversity. It appears that following the President’s initiative to keep the people appraised of what’s going on, various “stimulus sites” have been set up and have attracted a myriad of different ideas and proposals from across the nation. So far these have varied from the usual – “send us the money”, through to sponsoring the redevelopment of bathrooms and even offering a six pack of beer to every adult! Well I suppose at least that way you forget the slump for an hour or two?
Looking for business ideas in Britain has been fascinating as companies have looked to see how they can adapt to survive. One excellent example is Cooplands the bakers in Doncaster. They have found an ingenious way to beat the recession and add a further leg to their business. On the basis that many offices and businesses are now out of town at business parks, there is little chance of many being able to nip down to the local bap and sandwich shop in the town centres. So the answer is a mobile shop – selling fresh baps. So what do you call it? The Bapvan, where the Bapman comes to your offices in the specially converted beast of a machine, with the accompanying music over the van’s loudspeaker of the “Batman” theme. See picture below. Result? A storming success. Well done. I wonder if they sell Penguins?
Have a good week,
Justin A. Urquhart Stewart
Director
Seven Investment Management Limited
[i] Quoted from Grant’s Interest Rate Observer
[i] Quoted from Grant’s Interest Rate Observer
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