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FACTDROP: Banks accused of ‘dishonesty’ on reform


Banks accused of ‘dishonesty’ on reform

Πηγή: FT
By Brooke Masters and Sharlene Goff
Nov 22 2011

Bankers’ efforts to water down tougher new regulations by claiming they will harm economic growth are “intellectually dishonest and potentially damaging” and could inspire an even more robust crackdown, a leading UK regulator has warned.

“A profession which should stand for integrity and prudence now supports a lobbying strategy that exploits misunderstanding and fear,” said Robert Jenkins, who was named in July to the 11-member Financial Policy Committee, a new body charged with protecting financial stability.

Responding to bank executives’ warnings that the Basel III capital and liquidity standards could force them to cut lending and raise rates, Mr Jenkins said the lobbying was “dishonest because it is untrue“.

“Banks can strengthen their balance sheets without harming the economy. They can do so by cutting bonuses, by curtailing intra-financial risk-taking and by raising term debt and equity,” he said.

Mr Jenkins, a plainspoken former investment manager from F&C Asset Management, spoke in London the evening before the FPC is due to meet to identify risks to financial stability and recommend how to deal with them. While the FPC will not have a legal mandate to force change until the planned financial reform bill is enacted next year, its members include the senior leadership of both the Financial Services Authority and the Bank of England. In previous meetings it has warned banks to use profits to amass capital and cut dividends and bonuses rather than reducing lending.

The FPC will also consider a sobering Bank of England survey, which reported that fears that the UK financial system would be seriously disrupted in the next three years were at their highest level since 2008.

Risk managers at big banks, hedge funds, insurers and asset managers told the latest Bank of England systemic risk survey that a sovereign debt crisis in the eurozone and a downturn in the global or UK economy led the list of threats.

Confidence in the UK financial system is also at its lowest level since 2009, with 28 per cent reporting that they were “not very confident” while another 57 per cent said they were only “fairly confident”.

These bleak responses, recorded in surveys conducted in September and October, reflect a marked deterioration in the outlook over the past six months and rising concern that the eurozone crisis will drag down the UK as well.

In his speech, Mr Jenkins said that bankers’ warnings about the potential impact of tougher regulation were contributing to the apprehension. “It promotes fear for an economy which the banks are there to serve and from which they draw their livelihood,” he said.

Amid the gloom, Lloyds Banking Group, which is scrambling to restore stability in the wake of its chief executive taking medical leave, said it would attempt to stimulate the broader economy by launching fresh commitments to increase lending to small businesses next year

John Maltby, director of commercial banking, said lenders had “woken up to the importance of SMEs” in stimulating growth. Calling the current climate the “worst in a generation”, he said: “We could just sit on our backsides thinking woe is us – or we could try to change it.”

Lloyds, which is particularly vulnerable to the health of the UK economy, will pledge to lend £12bn to SMEs in 2012 as it tries to reverse falling revenues.

Profile: Robert Jenkins

Robert Jenkins, the newest member of the UK’s newest regulatory body, is fast becoming one of the country’s most outspoken watchdogs.

Since being named to the Financial Policy Committee in July, Mr Jenkins, a former Citibank trader and asset manager, has given a series of speeches pushing for serious changes in the way bankers calculate their pay, interact with the broader economy and, most recently, lobby their governments.

As well as using the kind of plain spoken language rarely heard from regulators and central bankers, Mr Jenkins has been willing to call out bankers for behaviour he regards as objectionable. On Tuesday, he criticised efforts to water down the global “Basel III” capital requirements, calling them “dishonest and potentially damaging.”

“In pursuing its short-sighted approach the banking lobby is unwittingly making the case for more intervention in an industry which refuses to reform,” he was to say at a speech in London on Tuesday night, according to a prepared text.

The big unanswered question is whether this tough-talking attitude will affect the activities of the Financial Policy Committee, the new 11-member body charged with spotting risks to financial stability and finding ways to contain them. While the committee’s role will be advisory until planned legislation is passed next year, its membership means its recommendations carry great sway with front-line regulators.

Mr Jenkins is one of four external members on a committee that also has five Bank of England executives and the top two officials from the Financial Services Authority. If the FPC suggests that capital requirements be increased or that dividends be restrained, FSA regulators are unlikely to ignore it.

So far the FPC has been a consensual body. Its minutes do not link comments to individual members and no recorded votes have been taken. But as an external member – and the lone representative of the investor community – Mr Jenkins’ role is to bring a fresh perspective and challenge to a body dominated by regulators.

Mr Jenkins started out as a banker at Citibank before switching to asset management at Credit Suisse in 1992. After five years he moved to Foreign & Colonial - then owned by Germany’s Hypo-Bank - which was to become F&C Asset Management after a merger of rivals seven years later.

He was the chief executive of F&C until 2004 and the merger with Isis Asset Management, whereupon he became chairman. The share price of F&C has trailed the sector ever since and the merger is still regarded by many in the asset management industry as a lesson on why M&A activity is so difficult in a business where people are the chief assets.

Made chairman of the Investment Management Association in 2007, he served as a top industry lobbyist – an experience he said influenced his remarks about banking lobbyists on Tuesday.

“As a former lobbyist I understand that lobbies are there to lobby; but I also know that leaders are there to lead. Bank lobbies are winning the battles and losing the war. As for bank leaders, they need to lobby less and lead a lot more,” he said.

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