Andrew Newton2013-05-22T20:49:12-04:00Andrew Newtonhttp://www.huffingtonpost.co.uk/author/index.php?author=andrew-newtonCopyright 2008, HuffingtonPost.com, Inc.HuffingtonPost Blogger Feed for Andrew NewtonGood old fashioned elbow grease.Banking Standards Commission Is Bungling Gendertag:www.huffingtonpost.com,2012:/theblog//3.18804092012-09-16T12:07:17-04:002012-11-16T05:12:02-05:00Andrew Newtonhttp://www.huffingtonpost.com/andrew-newton/
Yesterday was the first hearing of the UK Parliamentary Commission on Banking Standards. The commission has a broad remit to consider and report on the professional standards and culture of the UK banking sector, considering the implications for government policy and regulation. The commission was established following the Libor scandal and the JPMorgan "London Whale" trading loss, not to mention the five year old financial crisis.
At the core of banking standards are questions of organizational culture, approaches to and inclusion in decision-making, ethical insight and assessment of risk. Surely no one thought the commission's mandate could be fulfilled without a good look at the issue of gender.
Might not gender then be a critical issue that needs to be addressed when investigating the financial sector, an industry with a well-documented history of gender-based discrimination, where diversity policies are subtly but systematically undermined such that women seldom find a place at the organizational level where culture is set?
In a circular way, that culture impedes women from making it to the top. Ilene H. Lang is president and chief executive of Catalyst, a New York-based global research and consulting nonprofit focused on women's career advancement. In an interview for the New York Times, she puts the problem thus:
"The Wall Street culture is characterized by what you might call really macho kinds of behavior...what's looked up to on Wall Street are people who swagger, people who will do the deal at any cost, people who will work day and night, hour and hour, for lots and lots of money and they don't care about anything else...That's a very masculine, macho culture, again a stereotype, and, in general, it's very hard for women or men to picture women being that way because that conflicts with the stereotypic norms of what women should be like."
If anyone thinks this is a problem limited to Wall Street, take a good look at the 2009 report of an inquiry initiated by the UK's Equality and Human Rights Commission. The UK financial sector's macho culture is well-documented anecdotally elsewhere.
The Parliamentary Commission on Banking Standards must specifically address the linkages between gender and bank culture. Will it do so? Is it equipped to do so, or does it symptomize the very disease it has been mandated to diagnose?
The Commission is a cross-party affair, with commissioners being selected by the party whips. In their wisdom they have selected just one female voice for inclusion in a panel of ten commissioners. Surely - at a minimum - commissions such as this should reflect the gender composition of Parliament as a whole, where women make up just one in five of the members of both the House of Commons and the House of Lords.
One candidate might have been Andrea Leadsom, a Conservative MP who used to be an executive at Barclays and demonstrated great ability in her cross-examination of the former Barclays boss Bob Diamond at the Libor hearings.
And why stop at this minimum? Diversity is good for policy-making in general. But it is surely imperative for the work of a commission focused on the ethics and risk-taking culture of this most masculine of sectors.
The commission has been hobbled from the get-go. Let's hope they take every possible opportunity to inform their hearings and report with gender perspectives, and take the insights gleaned through to relevant proposals on root-and-branch reforms of bank governance.]]>The Banks Are Bluffing -- They Aren't Moving Anywheretag:www.huffingtonpost.com,2012:/theblog//3.18500552012-09-04T05:54:54-04:002012-11-04T05:12:01-05:00Andrew Newtonhttp://www.huffingtonpost.com/andrew-newton/announced it was applying to open a new derivatives exchange in London's already competitive financial center in order to offer traders "regulatory choice". Back in June, in US congressional hearings on JPMorgan's $6bn trading loss, Congressman Gregory Meeks of New York reported that many banks in his jurisdiction were threatening to leave the US for Britain to profit from the "London loophole" alleged to underlie the "London Whale". Even French bankers want to leave Paris for London.
But wait. Banks noting the British regulator's "overreaction" to a string of London-based scandals are talking about leaving London. The global financial crisis prompted what to most onlookers was a long-overdue review of regulatory controls on banking, as well as use of the tax regime to redistribute profit from the banks to the taxpayers they had harmed. As a result, threats to leave London have been made by Goldman Sachs, JPMorgan, Standard Chartered and Barclays. Even HSBC, which moved to London from Hong Kong in 1994 in advance of the Chinese handover, has responded to these scandal-driven regulatory initiatives by threatening to move its domicile repeatedly through 2010 and most of 2011.
So if not to London, where will banks go? Well, strangely enough, Europe's ahead-of-the-global-regulatory-curve focus on pay reforms - specifically regarding the clawback of remuneration in the event of failure - means some European bankers including those in London are thinking of moving to - wait for it - the US, that excessively tight jurisdiction from which bankers are supposedly tempted to lax London. Barclays was apparently planning to move its headquarters there. Perhaps noting the apparent circularity of all this, Jamie Dimon, in his response to representative Carolyn Maloney berating the "London Loophole", insisted that overzealous regulation in the US would lead to an exodus of business not to London but to Singapore.
Threats to relocate based on regulatory arbitrage - the lure of a more lax jurisdiction - are far from new. In 1986 when London's 'Big Bang' financial reforms made it a more liberated place for banks to do business originating and trading securities, US banks flocked to buy up the old London partnerships. They then used their new freedom of choice to pressure the Fed to lift key restrictions on banks in the US. The Fed obliged within a year, long before the repeal of Glass-Steagall.
But whatever arbitrage manoeuvres might have made sense at the neoliberal dawn of deeply financialized capitalism, few now look plausible in the wake of late financialization's progeny, the global financial crisis.
We should distinguish between two levels of arbitrage, the location of the bank headquarters and the location of particular financial activities. The first signifies which government is on the hook for any bailout stemming from a future financial crisis, and that government sets rules for the bank's capital reserves and overall structure - so-called 'prudential' regulation - as well as tax on the financial firm's overall group-wide profits. The second determines which governments get to say whether the financial system can be put at risk by permitting particular kinds of activity and remuneration structure - known as 'conduct of business' regulation - and the taxation of particular transactions.
Moving activities around to the least onerous jurisdiction is relatively easy and a time-honored pastime. Jamie Dimon's assertion that activities will move to Singapore is plausible, up to a point. Asian financial centers other than Japan are expected to leap forward in importance over the next decade, and recent surveys appear to confirm that bankers would prefer to work in Singapore than London or New York, although that story has been getting an outing with oddly insistent regularity of late.
Noting that Asia's financial centers are growing in importance is one thing. Arguing that this presents banks with substantial opportunities for regulatory arbitrage in the conduct of business is another. After all, the recent regulatory tightening of remuneration structures and derivatives trading is born out of a demonstrable need to rein in bankers' excessive risk-taking. The consequences of that risk-taking were no more desired and just as criticized post-crisis in Asia as in the West. All the major Asian financial centers including Singapore have already demonstrated a desire over the last decade to tighten up on standards in finance and to build greater capacity to enforce them. Even if Asian financial centers would welcome an influx of Western bankers in the short-term, they will have little political appetite to indulge bankers' self-destructive excesses over the medium to long term. Whatever temporary regulatory relief Asia's financial centers might be prepared to extend the West's weary bankers surely amounts to the regulatory equivalent of predatory lending: ensnaring desperate bankers with a low regulatory bar and then raising that bar once the banks are locked in.
There is another development that could interfere with banks shopping for lax jurisdictions to conduct business. Their home country regulators increasingly recognize that a big problem occurring in an overseas unit operating under loose supervision often comes home to roost. Conduct of business issues are merely prudential business issues-in-waiting. To address this, the US Dodd Frank Act has been drafted so as to apply to overseas trading operations of US-based banks. If this becomes a trend, arbitrage could become all but impossible without moving headquarters.
So what about moving headquarters? HSBC* considers relocation of the bank's headquarters a "non-trivial matter", and yet insists on bludgeoning UK politicians and their anxious constituents with the possibility of exodus every three years. It's as if they were just talking about moving to new premises down the street. They manage to string out this three year cycle so that the threat can be wheeled out whenever the latest banking scandal cycle demands. If the political response to scandal is due in the period approaching the relocation decision then the bank delays the decision until after the political process has been resolved. If a scandal erupts mid-relocation decision cycle then the bank makes it known that political action taken now will impact the bank's next relocation decision. It is hard not to view HSBC's very public three year cycle for reconsidering domicile as anything more than a platform from which to mount continuous blackmail-based assaults against accountability, control and taxation priorities arrived at through legitimate democratic processes.
For their part, any jurisdiction that wants to attract (or, for that matter, retain) the headquarters of major banking institutions with the incentive of lower standards of prudential regulation or light taxation, however, had better have very deep pockets for the substantial public-funded bailout that indulgent regime - and the banks' current subsidized cost of capital - implies. And that jurisdiction will also need a compliant population from which to extract the bill.
Does Dubai really fit this profile? Does prudent Singapore? For its part it doesn't seem to think so.
Does Hong Kong? Hong Kong may look relatively free-wheeling now, but in the end it must look over its shoulder at China. Nothing in the 63-year history of the People's Republic indicates an inclination towards being "hands off", especially if they might be on the hook to provide a bailout.
All in all, you have to wonder why the US or UK governments would entertain these threats to an extent that makes the threat worth making. Politicians in hock to the financial sector for campaign contributions presumably love the relocation threat story because it deflects attention away from their own inaction towards those mean-but-oh-so-importantly-big banks. Banks in turn deflect attention to "a few of their biggest shareholders" who are demanding that the bank's location be put back into question.
Shareholders, of course, are never accountable for anything, so the buck stops nowhere. You have to wonder, though, why any shareholders go along with this story. While the public suffers, shareholders gain handsomely from a 'too-big-to-fail' bank's domicile in a country able and demonstrably willing to stump up bailout funds. And it cannot be assumed that shareholders are enthusiastic about all the banks' anti-regulatory positions concerning conduct of business, either, such as that relating to the claw-back of remuneration.
Clearly, if the G20 nations not only spoke with one voice on financial reform but also acted as one then we wouldn't have to listen to the threat any more. Short of that, let's at least recognize that perceived opportunities for regulatory arbitrage in the post-crisis world are deceptive, or else closing fast, and give them short shrift in the public policy debate.
*Disclosure: I worked in compliance at HSBC from 1994-1999.]]>Finance Reform: How Short Memories Are Createdtag:www.huffingtonpost.com,2010:/theblog//3.6474372010-07-15T11:06:31-04:002011-05-25T17:05:23-04:00Andrew Newtonhttp://www.huffingtonpost.com/andrew-newton/
Now we can see the shortening of memory taking place in real time, thanks to an article in the New York Times: "Wall St. Hiring in Anticipation of an Economic Recovery".
There is much that the article gets right:
That the recovery experienced by the bank follows their rescue by Washington
That while Wall St is hiring, the employment prospect across the rest of the US remains bleak
That the recovery in banking is not reflected in other sectors where jobs are not returning - like manufacturing, where since June 2008 the NYT notes employment fell by 14 percent compared to 8.5 percent in the financial sector nationwide.
These caveats, however, cannot compete in the memory against the more breathtaking assertions:
That the rebound of the biggest banks after being pumped with billions of dollars in taxpayer money is somehow a "remarkable recovery"
That the fact that Wall St employment never fell below the level to which it fell after the Dotcom bust (in which no one was bailed out) means "it actually weathered this recession -- the worst since the Depression -- better than the previous one".
Hogwash.
The most jarringly unqualified assertion of all is that the recovery in Wall St jobs is actually good for the local economy. As the paper reminds us:
"New York City is cutting services like day care and adult literacy programs to help balance its budget, while Albany is facing a $9.2 billion deficit in the state budget this year."
And notes that:
"Each job in the securities sector generates two additional positions in New York City, according to the federal Bureau of Economic Analysis. In part, that is because the average salary is much larger, with Wall Street employees earning an average of $392,000, compared with $63,875 for other workers in the city."
The New York Times has a difficult line to straddle here. As a New York paper it knows that the state of New York's economy took a direct hit when the banks ran into trouble. Wall St generates 20 percent of the state's tax base, albeit an increasingly volatile revenue that translates into volatile public service capacity.
But as a national paper that aspires to be a paper of record, it has to look beyond the interests of the local population if it is to provide appropriate context to its coverage.
Nationally, employment in the US in June 2010 was down 4.8 percent on pre-crisis levels, because of a crisis with its roots on Wall St. No recovery in employment on Wall St is going to be of benefit to these others.
Globally, of course, the situation is even worse: there are 33 million people more unemployed than there were on the eve of the financial crisis -- an unprecedented increase.
Then of course there are the other more severe global repercussions of Wall Street's crisis:
Until it is clear that the Street has accepted its responsibility for the crisis and accepted hard-wired constraints that will prevent it from happening again, how can those with good memories join in the celebrations when Wall St starts rehiring?
And as Paul Volcker opined in an article published July 9th in the New York Times itself, the financial reform legislation recently passed by Congress fails to get close to evading that prospect, the result of a remorseless firestorm of Wall St lobbying and influence.