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Exclusive: 'Get real' – Darling warns the bankers
Chancellor says return of the bonus culture threatens to undermine global economy again
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Independent Minds
Alistair Darling has warned bankers to stop backsliding into their bad old ways as he promised a much tougher regulatory system to prevent a repeat of last autumn's financial crisis.
Amid signs that the bonus culture blamed for excessive risk-taking is creeping back in the City of London, the Chancellor declared in an interview with The Independent: "There are people who are too complacent in my view. They need to be brought back to earth."
Mr Darling disclosed that he will try to end a damaging turf war between the Bank of England and the Financial Services Authority (FSA) by giving them both more powers in a White Paper on banking unveiled next week.
He assured the Bank it will play a central role in preventing future booms turning into bubbles and in assessing risks to the entire system as well as individual banks. The White Paper will endorse the Bank's call for financial institutions to have to provide "richer and more frequent" public disclosures of information. And it will back the FSA's demand to be able to extend its regulatory remit – a move which in future could draw hedge funds into its net.
The FSA will be ordered to take a more proactive approach to prevent a return to pay hikes and bonuses to reward short-term profits. If remuneration packages encourage risky behaviour, the FSA will force banks to hold more capital reserves to provide a safety net.
On the bankers, Mr Darling said: "It is not them I am particularly worried about. It is the rest of us who are being affected by it. The individuals concerned [in the banks] are not operating on their own. Some are only operating at all because of very substantial support from taxpayers, who are entitled to tell the Government we must not repeat the mistakes. If they go back to the way they were – to business as usual – without asking themselves over and over again whether they understand what they are doing, that would be disastrous for them and the rest of the world."
The Chancellor admitted the White Paper would not propose a cap on bonuses. "You can't have a pay policy in legislation," he said. But he said: "Every single director of a bank should ask themselves, 'Do I understand what the bank is doing and the risks it is being exposed to?' As the economy begins to recover, people must not drop their guard but strengthen their guard to make sure they don't repeat the mistakes of the past. Similarly, the regulators must keep a very close eye on what is happening and be vigilant about the risks. It is very important people don't get the idea it [the crisis] is all over; that they don't need to bother."
The Chancellor played down widespread reports of a power struggle between the Bank Governor Mervyn King and the FSA chairman Lord Turner of Ecchinswell. But he admitted: "It is very important that, from the Government's and the regulators' point of view, not only to act together, but that we are seen to act together."
The White Paper will be based heavily on a blueprint by Lord Turner in March on learning lessons from the crisis. It will retain the existing three-way split between the Treasury, the Bank and FSA but spell out plans to make them work together more closely and effectively.
Promising that both the Bank and FSA will get the "new tools" they need, Mr Darling admitted there had been a lively debate between them and the Treasury about their respective roles. "In any healthy democracy there is bound to be a discussion. It would be very odd if three people never disagreed," he said.
The big question, he insisted, was not "who does what?" but what new tools the regulators needed to ensure they could "put people on the rack and ask some pretty tough questions".
The Chancellor insisted: "It is not a turf war. It is a question of ensuring they both do the job they are set up to do and both do it effectively. They are not competing with each other. They are complementary."
Mr Darling ruled out Mr King's call for banks to be split between their risky investment and their retail businesses. But the White Paper will suggest that the banks' contingency plans make it easier to see the split between the two functions so that any future rescues would be easier.
Although a new Banking Act will be rushed through Parliament before the general election, the Chancellor conceded that some elements of the White Paper would not be set in stone because of the need for international agreement on some aspects of regulation – mainly with the United States and the European Union.
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Comments
Of course. The bankers know its time to loot the till while there is still something to left loot. As for Darling's empty rhetoric, what is he proposing - a slap across the wrist with a wet bus ticket or closing the door after the horse has bolted?
We have no faith in the saboteurs that constitute most western governments.
The Treasury controls 70% or more of some of these banks. What does the chancellor do when they make off with more money?
This Labour Government may think of themselves as comedians, but this aint funny.
Your boss had the opportunity to let these greedy sociopaths end up at Job Centre +, but what your boss told them was that they were too important to fail.
So now they are untouchable.
At least Mervyn King has his moral credibility intact.
Yours is shot to ribbons.
You even let that unelected buffoon Mandelson walk all over you.
It was a failure of the 'Tripartite' system of Banking regulation involving the Treasury, the FSA and the Bank of England introduced by Gordon Brown when he was Chancellor that allowed the banks to operate as they did. The failure of the regulators to understand their own roles, work with each other and understand the activities of the banks combined to create a "perfect storm" whereby the banks indulged in very risky activities on a large scale over a long period.
Banking regulation is not particularly difficult, it simply requires both the banks and the regulators to have a common understanding of what is allowed and an effective system of monitoring to ensure that all parties are aware of the current state of the banks affairs. External and internal auditors can assist the bank regulators and the bank management teams.
What should be banned are the elaborate tax avoidance schemes created by specialist departments. RBS have already disbanded their own department that conducted such business, Barclays have still to take such action.
The second area of reform is to forbid trading and lending activity that cannot be explained , no more trading 'black boxes' that contain convoluted derivative instruments that can turn into 'toxic waste'.
Retail and commercial banking activities should be held in different companies from the trading units that caused the financial crisis.
Britain's manufacturing capacity peaked decades ago, its coal supply has peaked, it's oil supply has peaked and it is increasingly dependent on imports of gas to keep warm and keep its consumption economy functioning at all.
With an economy that is 80% dependent on people buying goods and servies they don't need with money they don't have that is created out of thin air by the banks, it is perfectly obvious where it will end up.
The bankers know this and are making their last 'killing' before moving on to greener pastures.
PVM Oil Futures Ltd issued a statement on Thursday after rumours of irregular trading swept through London and Asian oil markets the previous day.....
A rogue trader has left a London-based oil brokerage with losses of almost $10m.........What you doing dalking on this??? Is good No?Yes?
I thank you
Firozali A. Mulla
The driver behind unwise lending was the desire for growth - not the bonus culture! It is noteworthy that none of the City of London banks got into trouble directly. It was those with "chips on their shoulders" like Northern Rock, HBOS, Bradford & Bingley and RBS that had to be "rescued". They wanted to play in the Premier league and "show the London boys a thing or two". Unfortunately they did not have the resources to do this successfully. Sure, growth was rewarded by bonuses - but so was short term trading, and this did not lead to trouble here. Likewise, many mutual Building Societies either failed or "had to be" rescued. But the bonus culture was largely alien to these institutions.
Of course, a "dash for growth" was only possible because of regulatory, fiscal and monetary policy failings. The Labour party is trying to scapegoat the bankers, and more especially the bonus system, for its own failures. The attack on high rewards is nothing more than their old fashioned appeal to the envious!
Isn't there some brilliant economist out there who can work out an economic system based on true personal and environmental reasonability without denying freedom.?
Mr Darling is right the old ways are creeping back so the big guys can boast of their Maserati's and their big houses on the hill and it will all repeat itself.
Same old dinosaur economics.
Well Darling, yes you can. It's called a progressive tax system and can be used to curb the wildest excesses of these greedy bankers. It raises much needed revenue for the rest of us who have suffered at the hands of bankers and spineless politicians and sends a message that greed will once again be viewed as a bad thing.
I have no doubt that Darling and Brown will not do anything to upset the city. Why? Because both are eyeing the post politics pay day with directorships at exactly the same banks they are currently keeping afloat. THIS aspect is the most disturbing of all, showing a clear conflict of interest in favour of bankers and AGAINST us, the taxpayer.
WHERE ARE THE MEDIA on this issue?
Mr Darling ruled out Mr King's call for banks to be split between their risky investment and their retail businesses. But the White Paper will suggest that the banks' contingency plans make it easier to see the split between the two functions so that any future rescues would be easier.
The losses of the banks can be seen as a direct result of the business using retail deposits to gamble, Mr King correctly states that the retail business should be seperate from the investment (gambling) business. The article states this will not happen, instead U.K. based banks in future will more properly record all of their gambles so when the gambles fail the government can identify more quickly how much of our money to give them !
One key barrier to banks gambling in the U.S.A the Glass Steagel act (repealed in 1999) which after the banking collapse in 1932 outlawed U.S. banks operating as one identity containing retail and investment banking activities, see :
http://en.wikipedia.org/wiki/Glass-Stea
U.K. legislation also prevented this until a series of seperate measures after 1980 reduced effective regulation to the point where banks could act as investment firms, more widely understood as casinos.
Mr Darling and the government have no intention of undoing the changes made by Brown during his time as chancellor or those made by the previous government, the conservatives also have made no clear commitment to future effective regulation of banking.
Please see what Mr Brown and Cameron have said regarding U.K. banking over the last five years at :
http://www.havingtheircake.com/cont
It is dissapointing that more of us do not understand why we pay what we pay for the essential needs of our lives, shelter, water, power and food, all of these prices have risen signifigantly above government measures of inflation over the past 10 years alongside large increases in indirect taxation.
Both political parties it would appear regardless of what is said have policies that in action make us poorer, not because this has to happen but as their choice, It is sold and indoctrinated into us as inevitable, it is not.
When education doesn't teach how to think and the only information widely distributed is trivial fiction, it may be prudent to research what we need to know ourselves to gain some degree of control in our lives.
Dullness reigns supreme as she ever has over the men and women in Britain.
"Isn't there some brilliant economist out there who can work out an economic system based on true personal and environmental reasonability without denying freedom.? "
Some one with principles, you mean. We're all locked into the same formular based on
company performance ? proper investigations into a company insolvency ? same rules
for all
Next world.
Scrap the FSA and give the entire remit to the one organisation that understands it, the bank of england and stop the Treasury meddling in the affairs of all.
The last thing is to ban politicians from taking directorships for ten years, this way they will be well and truly out of the loop concerning the ins and outs of the government.