Closer ties needed to avoid future banking crisis

After Barclays was fined £290-million for rigging Libor in June 2012 Andrew Bailey, the deputy governor of the Bank of England, said that the bank had a "culture of gaming" the regulator. (AFP)

After Barclays was fined £290-million for rigging Libor in June 2012 Andrew Bailey, the deputy governor of the Bank of England, said that the bank had a "culture of gaming" the regulator. (AFP)

Top regulators and the boards of banks need to have a more trusting relationship to avoid another financial crisis, a leading policy group has said. It also called for banking supervisors to be paid more.

Acknowledging that bankers earn three times more than their regulators, the influential Group of 30 said, in a report, that the relationship between the two needed to be overhauled and banks should shift their focus away from taking short-term risks to ­generate bigger profits.

"Trust in bank governance had been eroded and it needs urgent repair. That means more effective supervision," said Jean-Claude Trichet, the former president of the European Central Bank, who chairs the G30, a nonprofit body of bankers, regulators and academics.

"Exchanges of candid and detailed views between supervisors and board directors, which could have a profoundly beneficial impact on the ways banks are run, are not, in many cases, taking place.
This needs to change," said Trichet at the launch of a report calling for a "new paradigm" in the relationship between bankers and regulators.

After Barclays was fined £290-million for rigging Libor in June 2012 Andrew Bailey, now the deputy governor of the Bank of England, said that the bank had a "culture of gaming" the regulator.

Sir David Walker, appointed chairman of Barclays following the allegations of interest rate manipulation, sits on the G30 and said that board directors would need to make a greater commitment to their banks.

Building trust will take time
?"Building trust between boards and supervisors is going to take time. For this paradigm to work, boards at many banks need to be proactive and take supervisory relations more seriously," Walker said.

The report does not address ­levels of pay for bankers but calls for a link between pay and behaviour and "appropriate consequences for transgressions of risk appetite".

On the subject of regulators being paid less than the banks they regulate, he suggested that regulators could be drawn from bankers reaching the ends of their careers.

Barclays, however, recruited former boss of the United Kingdom's regulatory body the Financial Services Authority, Sir Hector Sants, to head its compliance department, though he is currently off work.

John Heimann, a former United States banking regulator at the Comptroller of the Currency, said regulators needed to have the respect of bankers.

"High-quality supervision is a lot less expensive than a financial crisis," he said.

Supervisors need "substantial additional bench strength" because not all of them were able to deal with boardrooms, the report said.

"Where compensation is insufficient to attract and retain the best people for supervisory roles, more resources should be found," said Roger Ferguson, a former member of the US Federal Reserve, who was closely involved in the report.

He insisted that the G30 was not calling for a partnership but for a "more robust and continuous dialogue". — © Guardian News & Media 2013

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