The document discusses banking reform in the US following the financial crisis. It summarizes that the US Senate recently approved major banking reform legislation aimed at preventing future crises. However, critics argue the legislation may not go far enough to reform the system and prevent risks. Banks strongly resisted reforms and some continue risky trading practices. Overall, regulators have addressed some symptoms but not the systemic causes that could still enable future financial breakdowns.
Moderninizing bank supervision and regulationcatelong
This is the testimony of Chris Whalen to the Senate Banking Committee on March 24, 2009 about bank and financial institution regulation and supervision.
Macro Risk Premium and Intermediary Balance Sheet Quantitiescatelong
The macro risk premium measures the threshold return for real activity that
receives funding from savers. Financial intermediaries’ balance sheet conditions provide a window on the macro risk premium. The tightness of intermediaries’ balance sheet constraints determines their “risk appetite”. Risk appetite, in turn, determines the set of real projects that
receive funding, and hence determine the supply of credit. Monetary policy affects the risk appetite of intermediaries in two ways: via interest rate policy, and via quantity policies. We estimate time varying risk appetite of financial intermediaries for the U.S., Germany, the U.K., and Japan, and study the joint dynamics of risk appetite with macroeconomic aggregates and monetary policy instruments for the U.S. We argue that risk appetite is an important indicator for monetary conditions.
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
This paper is a summary of press clippings gleaned from Internet during the period April to July 2008. This exercise was performed to provide a quick summary of the US credit crisis at that particular point in time / 2nd quarter 2008. The paper was presented to a non native English speaking European audience consisting primarily of insolvency judges July 3rd 2008 in Paris.
June 2010 Ethical Corporation intelligence briefing on how banks can and should use ethics, sustainability and corporate responsibility to rebuild trust in their brands and in finance generally
Six Principles for True Systemic Risk Reformcoryhelene
Ten years after the capstone of financial industry deregulation--the Financial Modernization, or Gramm-Leach-Bliley, Act--the United States is facing the worst economic crisis since the Great Depression. The following policy brief outlines six key principles for comprehensive and meaningful systemic risk reform, which are neccessary to undo many of the ill-advised deregulatory measures of the past 20 years, including the four key changes wrought by the Gramm-Leach-Bliley Act.
The presentation discusses Digitalization and Taxation in various matters, i.e. 1) how it can help expanding tax base, 2) how it can help striking optimality between efficiency vs equity, and 3) also others issues regarding such tax policy as optimal tax policy and negative income tax. It will discuss how we can use reinforcement learning ABMs to justify the policy.
A View at the Financial Collapses in the United States and the Evolution of t...Joel Stitt
MBA Thesis presentation on United States Financial Collapses, specifically the Housing Market Crash of 2008 and the Great Depression, and the evolution of the banking and financial services industry over the past century
The Global Finance Crisis Case StudyIntroductionThe inside job was a.docxcherry686017
The Global Finance Crisis Case StudyIntroductionThe inside job was a 2010 documentary film by Charles Ferguson that clearly demonstrated the 2008 crisis. On the other hand, it comprehensively narrated and revealed its causes, key players as well as its consequences. It goes ahead to explain the systemic corruption by key financial players in the finance industry and effects of such corruption in United States of America. Furthermore it reveals that changes in financial as well as other policies and banking practices contributed to the growth of the crisis casing most Americans to lose their savings, their jobs and hard earned homes.Answer One: The Unintended Consequences of Financial InnovationIt has been ascertained that changes in the policy framework governing the financial industry and the banking practices heavily contributed to the financial crisis. The development of complex trade policies such as the derivatives market allowed for large increases in risk taking that circumvented older regulations that were intended to control systemic risk. These derivatives increased instability since their adoption is resulted in large losses because of the use of borrowing. Investors suffered the risk of losing large amounts of investments or savings if the price of the underlying moved against them significantly. Secondly the collapse of the house boom in 2004 caused by the application of collateralized debt obligations and the global economic meltdown resulted in unimaginable imbalance of the ratio of money borrowed by investment banks and its own assets. This caused the value of securities related to real estate to crash down and damage financial institutions internationally as the market for collateralized debt obligations collapsed.. It is these financial innovations such as securitization that prioritize short-term over long-term value creation that triggered the 2008 financial crisis.Answer two: The unintended consequences of regulationThe deliberate shift from a system of regulation to deregulation of the financial industry encouraged unusual business practices which had adverse effects. Great pressure was exerted by the financial industry on the government to thwart efforts of regulating the industry. The government and central bank which have the responsibility of upholding financial stability through proper regulation of the financial markets and its institutions were split which led to insufficient responsibility. This exposed the industry to greater and more complicated risks since the supervisory and regulatory structure failed to keep up with the evolution of the financial markets. Answer three: Explain how the financial crisis of 2008 occurred—who is to blame?The global financial crisis began in the early 2000s and finally climaxed in 2008 and since then its devastating impact still lingers, worldwide. It began when; the financial sector which had consolidated into a few giant firms introduced the use of high risk derivatives. It i ...
Moderninizing bank supervision and regulationcatelong
This is the testimony of Chris Whalen to the Senate Banking Committee on March 24, 2009 about bank and financial institution regulation and supervision.
Macro Risk Premium and Intermediary Balance Sheet Quantitiescatelong
The macro risk premium measures the threshold return for real activity that
receives funding from savers. Financial intermediaries’ balance sheet conditions provide a window on the macro risk premium. The tightness of intermediaries’ balance sheet constraints determines their “risk appetite”. Risk appetite, in turn, determines the set of real projects that
receive funding, and hence determine the supply of credit. Monetary policy affects the risk appetite of intermediaries in two ways: via interest rate policy, and via quantity policies. We estimate time varying risk appetite of financial intermediaries for the U.S., Germany, the U.K., and Japan, and study the joint dynamics of risk appetite with macroeconomic aggregates and monetary policy instruments for the U.S. We argue that risk appetite is an important indicator for monetary conditions.
A Fistful of Dollars: Lobbying and the Financial Crisis†catelong
Has lobbying by financial institutions contributed to the financial crisis? This paper uses detailed information on financial institutions’ lobbying and their mortgage lending activities to answer this question. We find that, during 2000-07, lenders lobbying more intensively on specific issues related to mortgage lending (such as consumer protection laws) and securitization (i) originated mortgages with higher loan-to-income ratios, (ii) securitized a faster growing proportion of their loans, and (iii) had faster growing loan portfolios. Ex-post, delinquency rates are higher in areas where lobbying lenders’ mortgage lending grew faster. These lenders also experienced negative abnormal stock returns during key events of the crisis. The findings are robust to (i) falsification tests using information on lobbying activities on financial sector issues unrelated to mortgage lending, (ii) instrumental variables strategies, and (iii) a difference-in-difference approach based on state-level lending laws. These results suggest that lobbying may be linked to lenders expecting special treatments from policymakers, allowing them to engage in riskier lending behavior.
Deniz Igan, Prachi Mishra, and Thierry Tressel, Research Department, IMF‡
October 14, 2009
This paper is a summary of press clippings gleaned from Internet during the period April to July 2008. This exercise was performed to provide a quick summary of the US credit crisis at that particular point in time / 2nd quarter 2008. The paper was presented to a non native English speaking European audience consisting primarily of insolvency judges July 3rd 2008 in Paris.
June 2010 Ethical Corporation intelligence briefing on how banks can and should use ethics, sustainability and corporate responsibility to rebuild trust in their brands and in finance generally
Six Principles for True Systemic Risk Reformcoryhelene
Ten years after the capstone of financial industry deregulation--the Financial Modernization, or Gramm-Leach-Bliley, Act--the United States is facing the worst economic crisis since the Great Depression. The following policy brief outlines six key principles for comprehensive and meaningful systemic risk reform, which are neccessary to undo many of the ill-advised deregulatory measures of the past 20 years, including the four key changes wrought by the Gramm-Leach-Bliley Act.
The presentation discusses Digitalization and Taxation in various matters, i.e. 1) how it can help expanding tax base, 2) how it can help striking optimality between efficiency vs equity, and 3) also others issues regarding such tax policy as optimal tax policy and negative income tax. It will discuss how we can use reinforcement learning ABMs to justify the policy.
A View at the Financial Collapses in the United States and the Evolution of t...Joel Stitt
MBA Thesis presentation on United States Financial Collapses, specifically the Housing Market Crash of 2008 and the Great Depression, and the evolution of the banking and financial services industry over the past century
The Global Finance Crisis Case StudyIntroductionThe inside job was a.docxcherry686017
The Global Finance Crisis Case StudyIntroductionThe inside job was a 2010 documentary film by Charles Ferguson that clearly demonstrated the 2008 crisis. On the other hand, it comprehensively narrated and revealed its causes, key players as well as its consequences. It goes ahead to explain the systemic corruption by key financial players in the finance industry and effects of such corruption in United States of America. Furthermore it reveals that changes in financial as well as other policies and banking practices contributed to the growth of the crisis casing most Americans to lose their savings, their jobs and hard earned homes.Answer One: The Unintended Consequences of Financial InnovationIt has been ascertained that changes in the policy framework governing the financial industry and the banking practices heavily contributed to the financial crisis. The development of complex trade policies such as the derivatives market allowed for large increases in risk taking that circumvented older regulations that were intended to control systemic risk. These derivatives increased instability since their adoption is resulted in large losses because of the use of borrowing. Investors suffered the risk of losing large amounts of investments or savings if the price of the underlying moved against them significantly. Secondly the collapse of the house boom in 2004 caused by the application of collateralized debt obligations and the global economic meltdown resulted in unimaginable imbalance of the ratio of money borrowed by investment banks and its own assets. This caused the value of securities related to real estate to crash down and damage financial institutions internationally as the market for collateralized debt obligations collapsed.. It is these financial innovations such as securitization that prioritize short-term over long-term value creation that triggered the 2008 financial crisis.Answer two: The unintended consequences of regulationThe deliberate shift from a system of regulation to deregulation of the financial industry encouraged unusual business practices which had adverse effects. Great pressure was exerted by the financial industry on the government to thwart efforts of regulating the industry. The government and central bank which have the responsibility of upholding financial stability through proper regulation of the financial markets and its institutions were split which led to insufficient responsibility. This exposed the industry to greater and more complicated risks since the supervisory and regulatory structure failed to keep up with the evolution of the financial markets. Answer three: Explain how the financial crisis of 2008 occurred—who is to blame?The global financial crisis began in the early 2000s and finally climaxed in 2008 and since then its devastating impact still lingers, worldwide. It began when; the financial sector which had consolidated into a few giant firms introduced the use of high risk derivatives. It i ...
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW SEPTEMBEROCTOBER 200.docxmydrynan
FEDERAL RESERVE BANK OF ST. LOUIS REVIEW SEPTEMBER/OCTOBER 2008 531
The Credit Crunch of 2007-2008:
A Discussion of the Background,
Market Reactions, and Policy Responses
Paul Mizen
This paper discusses the events surrounding the 2007-08 credit crunch. It highlights the period
of exceptional macrostability, the global savings glut, and financial innovation in mortgage-backed
securities as the precursors to the crisis. The credit crunch itself occurred when house prices fell
and subprime mortgage defaults increased. These events caused investors to reappraise the risks
of high-yielding securities, bank failures, and sharp increases in the spreads on funds in interbank
markets. The paper evaluates the actions of the authorities that provided liquidity to the markets
and failing banks and indicates areas where improvements could be made. Similarly, it examines
the regulation and supervision during this time and argues the need for changes to avoid future
crises. (JEL E44, G21, G24, G28)
Federal Reserve Bank of St. Louis Review, September/October 2008, 90(5), pp. 531-67.
that the phrase “credit crunch” has been used
in the past to explain curtailment of the credit
supply in response to both (i) a decline in the
value of bank capital and (ii) conditions imposed
by regulators, bank supervisors, or banks them-
selves that require banks to hold more capital
than they previously would have held.
A milder version of a full-blown credit crunch
is sometimes referred to as a “credit squeeze,”
and arguably this is what we observed in 2007
and early 2008; the term credit crunch was already
in use well before any serious decline in credit
supply was recorded, however. At that time the
effects were restricted to shortage of liquidity in
money markets and effective closure of certain
capital markets that affected credit availability
between banks. There was even speculation
T
he concept of a “credit crunch” has a
long history reaching as far back as the
Great Depression of the 1930s.1 Ben
Bernanke and Cara Lown’s (1991) classic
article on the credit crunch in the Brookings
Papers documents the decline in the supply of
credit for the 1990-91 recession, controlling for
the stage of the business cycle, but also considers
five previous recessions going back to the 1960s.
The combined effect of the shortage of financial
capital and declining quality of borrowers’ finan-
cial health caused banks to cut the loan supply
in the 1990s. Clair and Tucker (1993) document
1
The term is now officially part of the language as one of several
new words added to the Concise Oxford English Dictionary
in June 2008; also included for the first time is the term
“sub-prime.”
Paul Mizen is a professor of monetary economics and director of the Centre for Finance and Credit Markets at the University of Nottingham
and a visiting scholar in the Research Division of the Federal Reserve Bank of St. Louis. This article was originally presented as an invited
lecture to the Groupemen ...
Jon terracciano: Hedging the Global Market - IntroductionJon Terracciano
The introduction to a series of presentations on "Hegding the Global Market: Avoiding Excessive Hedge Fund Regulation in a Post-Recession Era". Additional presentations to follow. By Jon Terracciano, 2008
Endogenous Developments in the financial sector that led to th.docxbudabrooks46239
Endogenous Developments in the financial sector that led to the 2007-9 crisis
The financial crisis of 2007-2009 was not a typical credit crunch crisis as the ones we have seen in
the modern capitalist era. It wasn’t a crisis solely driven by the irrationality of market participants or
the result of an overvalued market system; it was in fact a much more complex phenomenon. The
development and alternations in the financial sector through the last 20 years is undoubtedly
significant. With the collapse of Keynesianism in the 1970’s and the emergence of Neoliberalism the
economy was to change page from a state-led mechanism to an autonomous factor. Although
favoured by a period of high degree market liberalisation with policies of a laissez faire doctrine, the
financial sector achieved its rapid development and expansion endogenously. Within the
frameworks of the financial system, a new set of institutions emerged to supply the excess demand
for credit without however being compliant to the typical legislative requirements of a commercial
bank; this practise of regulatory and financial arbitrage was performed by the so-called “shadow
banking system”1. Rating agencies, mainly Standard & Poor’s and Moody’s became part of this
system undermining thus their actual role as exogenous regulatory forces2. Moreover, the
construction of new financial products such as asset-backed securities and their exchange in the
over-the-counter markets was a pivotal step towards a volatile financial system that relied heavily
on mortgages handed on non-creditworthy borrowers3; the burst of this bubble system was thus
inevitable.
From the end of the 1990’s up to 2007 the banking system had created an image of euphoria,
where credit was granted with less and less collateral requirements as the demand for loans had
increased dramatically and banks found a way to instantly increase their profits. It’s worth to
mention that commercial banks for example in Greece, which today operate under a capital control
scheme, in 2006 had started issuing ‘holiday’ loans to the public4. From the beginning of the 2007
economic crisis up to 2016 the Greek central bank has recapitalized the domestic commercial banks
thrice as the country was facing the threat of bankruptcy5. In the US, the heart of the global capital
markets, the government had to step in the financial markets and through direct spending to save
financial giants, such as AIG and restore the liquidity shortage that had resulted6. The complex
nature and architecture of this new financial order was depicted by the domino-like collapse of its
branches in contrary to previous typical credit crisis, as the dotcom bubble of 2001. But what really
made this new order so complex and interdependent within its spheres?
As mentioned before, because of the widespread climate of over-optimism in society people and
firms were triggered to borrow money and designed their l.
At Techbox Square, in Singapore, we're not just creative web designers and developers, we're the driving force behind your brand identity. Contact us today.
Kseniya Leshchenko: Shared development support service model as the way to ma...Lviv Startup Club
Kseniya Leshchenko: Shared development support service model as the way to make small projects with small budgets profitable for the company (UA)
Kyiv PMDay 2024 Summer
Website – www.pmday.org
Youtube – https://www.youtube.com/startuplviv
FB – https://www.facebook.com/pmdayconference
Premium MEAN Stack Development Solutions for Modern BusinessesSynapseIndia
Stay ahead of the curve with our premium MEAN Stack Development Solutions. Our expert developers utilize MongoDB, Express.js, AngularJS, and Node.js to create modern and responsive web applications. Trust us for cutting-edge solutions that drive your business growth and success.
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Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
Company Valuation webinar series - Tuesday, 4 June 2024FelixPerez547899
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Looking for professional printing services in Jaipur? Navpack n Print offers high-quality and affordable stationery printing for all your business needs. Stand out with custom stationery designs and fast turnaround times. Contact us today for a quote!
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
3.0 Project 2_ Developing My Brand Identity Kit.pptxtanyjahb
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Vat Registration is a legal obligation for businesses meeting the threshold requirement, helping companies avoid fines and ramifications. Contact now!
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Recruiting in the Digital Age: A Social Media MasterclassLuanWise
In this masterclass, presented at the Global HR Summit on 5th June 2024, Luan Wise explored the essential features of social media platforms that support talent acquisition, including LinkedIn, Facebook, Instagram, X (formerly Twitter) and TikTok.
2. The recent US Senate grilling of Goldman
Sachs executives neatly reveals a root
cause of the US financial crisis. After senior
executives at the Wall Street icon were
compared to bookies, Republican senator
John Ensign said: “In Las Vegas most people
know that the odds are stacked against
them. On Wall Street they manipulate the
odds while you’re playing the game.”
This alleged market manipulation is at
the centre of a Securities and Exchange
Commission lawsuit that alleges Goldman
defrauded clients by marketing a subprime
mortgage product it had bet against. In its
defence the bank called the lawsuit
“completely unfounded”, adding: “We did
not structure a portfolio that was designed
to lose money.”
The hearings highlight the heated debate
over the role of banks and whether
speculative, highly risky activities should
be combined under the same roof as the
stewardship of the public’s savings and
loans. Should banks be charged with
safeguarding their clients’ interests or
make money for shareholders and execu-
tives, some of whom are taking home
billions in bonuses? As Goldman Sachs chief
executive Lloyd Blankfein bluntly put it in a
January testimony to the US Senate: “We
are not a fiduciary.”
Regulators have very different ideas. US
senators responded to public calls for
accountability in the financial sector by
approving in May a far-reaching financial
regulatory bill. Announcing the break-
through – described as the biggest overhaul
of the banking sector since the 1930s – US
president Barack Obama lambasted Wall
Street for resisting reform.
“The recession we’re emerging from was
primarily caused by a lack of responsibility
and accountability from Wall Street to
Washington,” Obama said. “That’s why I
made passage of Wall Street reform one of
my top priorities, so that a crisis like this
does not happen again.”
Throughout what had been a very
bumpy passage through Senate, which
followed the December passing of the bill
by the House of Representatives, Democrats
fended off most major changes sought by
Republicans and some members of their
own party. They were eventually joined by
three Republicans in a 60-40 vote to end
debate on the bill.
Michelle Chan, California-based director
of Friends of the Earth’s Green Investments
programme, says that members of the US
Congress, Republican and Democrat, want
to look like crusaders for reform.
“And of course the electorate is very keen
to rein in the excesses on Wall Street,” she
says. But she suggests there are huge ques-
tions as to whether and how the ultimate
financial reform package which emerges
out of the Senate will have enough clout to
essentially prevent a repeat of another
financial meltdown.
Splitting up is hard to do
The passage of the bill through the Senate
triggered a conference between delegates
from the Senate and the House to reconcile
their differences on the legislation to form
one compromise bill. That bill would need
to be approved by both chambers by simple
majority votes before going to the president
to sign into law.
Both the final versions of the bills require
most derivatives to be traded through third
parties, with the intent of increasing trans-
parency. But the Senate bill clamps down on
banks finding exemption from some of the
new rules.
The reform measures aim to rein in big
firms’ use of high-risk practices blamed for
the global financial crisis and put an end to
taxpayer-funded bailouts of banks previously
deemed “too big to fail”. They also aim to
curb the sector’s largely unregulated deriva-
tives business and include several measures
aimed at increasing the transparency and
accountability at the US Federal Reserve.
Friend’s of the Earth’s Chan attributes
the banks’ lack of enthusiasm for reform
Regulation and reform
Resistance to rules
By Oliver Wagg
Resistance to bank regulation within the sector was strong in the lead-up to the
successful US Senate banking reform vote in May, despite public furore over Wall
Street excesses
Briefing: banks and finance12 Ethical Corporation • June 2010
ISTOCKPHOTO/KONSTANTIN32
“On Wall Street they
manipulate the odds while
you’re playing the game”
John Ensign, US Senate
3. The Volcker Rule
US president Barack Obama proposed in January that
“banks will no longer be allowed to own, invest,
or sponsor hedge funds, private equity funds, or
proprietary trading operations for their own profit,
unrelated to serving their customers”.
Named the Volcker Rule, after former Federal
Reserve chairman Paul Volcker, the proposal means
two major reforms to banks:
• Derivative products should be sold and cleared
through conventional exchanges, which are
transparent and can be properly supervised.
• A new resolution regime for banks, to replace
“too big to fail”.
Volcker is not advocating a return to Glass-Steagall
– a bill that separated investment and commercial
banking activities – or a stipulation that retail banks
should be prohibited from engaging in investment
banking. And the impact of the new US legislation
remains to be seen.
Meanwhile, politicians and campaigners
alike have taken aim at the UK government’s
lackadaisical approach to environmental,
social and governance (ESG) stewardship at
the newly acquired financial institutions.
A UK select committee hearing into the
banks’ use of taxpayer money in March saw
MPs quiz officials from the Treasury and
UK Financial Investments (UKFI) – the
government-owned corporation set up to
manage these stakes. The sometimes stormy
session revealed the government had
placed no environmental or sustainability
conditions on the operations of the banks,
other than limits on executive pay and
lending.
UKFI officials struggled to justify direct
intervention in a government-owned
bank’s business other than if it took any
actions to harm its value.
Asked if there was anything that a bank
might do in terms of environmental sustain-
ability that might actually prompt UKFI to
take some action, its chief executive, Robin
Bundenberg, said: “It comes down to the
impact on value and that is quite a broad
issue because where a company’s reputa-
tion is brought into question, that often
does have a very direct impact on value.”
Campaigners say the government is
missing a big opportunity. UKFI, at the
minimum, should follow standard good
practice for institutional investors, says a
coalition of NGOs including Platform,
Friends of the Earth and War on Want. This
involves such action as behaving as an
active owner and incorporating environ-
mental, social and governance issues into
ownership policies.
No end in sight
Investment specialists warn that by tackling
the symptoms, regulators are failing to
tackle the systemic causes of the global
financial crisis, raising the chance of further
hits on the world’s markets and economies.
Towers Watson’s global head of invest-
ment content Roger Urwin says risk-taking
in the banking sector traditionally has been
exceptionally high. He argues that the
banking industry is obviously chastened by
the financial crisis, is rebuilding capital to a
certain degree and reducing certain types of
risk. In other words, “it is in a better place
right now”. But the degree to which banks
will accept that regulatory reform is on
balance desirable is, he says, small. “There’s
no zeal.”
Urwin, who participates in the Network
for Sustainable Financial Markets, says risk
and uncertainty are endemic in today’s
financial system. “We live in a more tightly
coupled, interconnected financial world.”
And being tightly coupled means the
markets are predisposed to accelerating
forms of crisis or financial accident.
“Narrowly defined, the global financial
crisis was over in the summer of 2009.
Broadly speaking the global financial crisis
continues, because all we have done is sort
out some of the symptoms and not some of
the systemic causes,” Urwin adds. I
Briefing: banks and finance 13Ethical Corporation • June 2010
ISTOCKPHOTO/PHILPELL
Too much playing the market
to the profit-making potential of the
sector’s over-the-counter (OTC) derivative
operations.
“OTC derivatives remain a very large
profit centre at many banks, even during
the downturn,” Chan says. New rules –
including the so-called Volcker Rule (see
box) – may be “very scary to the banks
because [the changes represent] a challenge
to their business model.” The derivatives bill
that came out of the Senate may require
banks such as Citigroup, and Bank of
America, now that it’s part of Merrill Lynch,
to spin off their derivatives trading.
Bailouts, but little duty of care
Keen to prevent systemic financial market
meltdown, governments acted swiftly to
buy stakes in failing banks during the
fallout of 2008. But recent data and govern-
ment hearings indicate the resulting state
ownership failed to spur business recovery
or foster improved environmental and
social stewardship.
A recent US government report revealed
the biggest Wall Street banks actually
slashed their small business loan portfolios
by 9% between 2008 and 2009, more than
double the rate at which they cut their
overall lending.
“Big banks pulled back on everyone,
but they pulled back hardest on small
businesses,” says Elizabeth Warren, chair-
woman of the Troubled Asset Relief
Program oversight committee, charged with
managing the US government’s financial
stabilisation package effort.
Regulators are failing to
tackle the causes of the
financial crisis
4. Trust is everything in banking. The global
financial crisis of the past three years has
jeopardised that most valuable of commodi-
ties. The hard-won reputation of the
financial sector dived to all-time lows in the
wake of the credit crunch. And now – even
with an economic recovery under way
across most western economies – it may
remain irrevocably damaged.
Many banks have resolutely set them-
selves on a course for recovery by developing
and strengthening the corporate social
responsibility and sustainability initiatives for
which they were once so well known. Some
have developed brand new programmes,
while opening their vaults to customers and
shareholders in a new spirit of transparency.
But few have radically changed the way
they do business, which suggests that
future systemic financial breakdowns could
be inevitable.
Financially, banks are certainly on the
road to recovery in the UK, one of the
economies hit hardest by the fallout of the
banking crisis.
Royal Bank of Scotland, bailed out by the
UK taxpayer, reported a first-quarter loss in
May, but it was the only major UK financial
institution to do so. HSBC joined Barclays
and Lloyds Banking Group in posting
healthy profits.
In the UK, the credit crunch was quickly
followed by a rise in customer complaints.
Now high street banks face possible fines
after UK’s Financial Services Authority said
in April that it was formally investigating
the sector for mishandling customer
complaints.
Serious complaints
The FSA hasn’t named names, but says five
banks have weaknesses processing griev-
ances after reviewing lenders responsible
for 70% of complaints it received.
Peter Vicary-Smith, chief executive of
consumer advocacy group Which?, says the
findings provide “another damning indict-
ment of the banking industry, many of
whose members consistently put sales
before customer service”.
RBS, for instance, was responsible for
2,557 new complaints received by the Finan-
cial Ombudsman Service in the second half
of 2009, while the service received 9,952 new
complaints about Lloyds in the same period.
Given the scale of the credit crisis and
the impact on people’s back pockets, this is
hardly surprising, senior banking execu-
tives say.
Andrew Cave, head of corporate sustain-
ability at RBS, admits the group’s brand is
“in a difficult place right now”. But the
bank’s ignominious fall from grace is not
borne out by sales data: last year RBS
customers opened one million new savings
accounts, 1.1m more current accounts and
80,000 mortgage accounts.
“This indicates the underlying strength
that exists in the core businesses at RBS, and
demonstrates that our employees’ commit-
ment to customer service is reaping rewards,”
RBS chairman Philip Hampton said in the
bank’s 2009 corporate responsibility report.
“I have always said that if we continue to
deliver for our customers on a day-by day
basis RBS will restore its reputation sooner
than some commentators believe.”
Cave admits banks have been under
pressure. “But when you step back, if our
products are delivered responsibly and effi-
ciently, they are deemed to be socially useful.”
Across Europe, banks once hailed for
their corporate responsibility have suffered
huge setbacks. For instance, public opinion
surveys conducted last year indicated that
Danish customers were among the least
satisfied in Europe.
Danske Bank, the largest bank in
Denmark, which has won accolades for its
corporate responsibility programmes, was
deeply affected by a general lack of trust,
according to its 2009 corporate responsi-
bility report.
Marion Swoboda, senior equity analyst
at investment boutique Sustainable Asset
Management, says that globally the banking
sector has weathered the storm relatively
well. She singles out pockets of best practice
in Australia (particularly ANZ, Westpac and
NAB), Spain (Santander and Banco Bilbao)
and France (BNP Paribas and Credit
Agricole).
One particular standout in the March
2010 DJSI World Index review was Italy’s
Banks and bankers
The search for brand revival
By Oliver Wagg
Some financial institutions have taken the opportunity of the banking crisis to
re-evaluate policies and business models. But is there really a change in culture?
Briefing: banks and finance14 Ethical Corporation • June 2010
ISTOCKPHOTO/BARTCO
5. services companies in the world,” the bank
says in a section headed Rebuilding Trust.
In the wake of the global financial crisis
and the ensuing credit crunch, banks now
need to forge a much stronger contract with
society.
Anne Søgaard Melchiorsen, head of
corporate responsibility at Danske Bank,
says that corporate responsibility and
sustainability must have a much broader
focus, and that they have to move even
closer to the bank’s core business.
“Beforehand you could have some ‘nice
to do’ projects – perhaps some microcredit
projects, some [investment] screenings etc –
but now responsibility is about the core
business,” she says. And this means respon-
sible lending, and how the bank acts as an
adviser, she suggests.
Citigroup, one of the biggest banking
groups in the world, says it has plotted a
path to recovery through the provision of
responsible finance in response to what
customers want.
Pamela Flaherty, president and chief
executive of the Citi Foundation and
director of Citigroup’s corporate sustain-
ability, says group chief executive Vikram
Banks need to forge
a stronger contract
with society
Banca Monte dei Paschi di Siena (BMPS),
which progressed a lot. Like the Australian
banks, BMPS “really understands the impor-
tance of rethinking business strategy,”
Swoboda says.
“That might not get you points with the
traditional analysts – having a more down-
to-earth, steady growth strategy as opposed
to perhaps a focus on structured finance –
but it is certainly the way forward.”
Francesco Mereu, corporate responsi-
bility manager at BMPS, says the bank’s
sustainability efforts are in reaction to a
marked decline in trust and reputation of
the banking sector in Italy.
“Regaining that trust is certainly the
focus of our business plan for the next year,”
he says. Mereu is confident that the bank’s
CEO is keen is keen to prioritise sustain-
ability objectives. The bank’s new core
project, set up over the past year, is simply
named Sustainability – “the aim is to
completely embed environmental, social
and governance [ESG] aspects into our
management cycle”.
Mereu says sustainability will now be
central to the overall business strategy,
adding that the bank will use key metrics
throughout the business to incentivise
change.
BMPS was judged the best financial insti-
tution in the CSR Online Awards 2009, the
annual ranking of the best online corporate
responsibility communications conducted
by financial communication consultancy
Lundquist.
According to Lundquist, BMPS shows
“remarkable sensitivity to corporate respon-
sibility issues and uncommon completeness
in reporting”. The bank provides, Lundquist
says, a high level of detail, with a great deal
of relevant information from its corporate
responsibility report available in different
formats.
Opening up?
But have UK state-owned banks been
forced into becoming more transparent and
accountable since the government became a
significant shareholder?
Royal Bank of Scotland, 83% owned by
the state, has made some significant strides,
according to Cave. “Clearly the new
management team had to mark a change in
culture. It fell to them to re-engage our
stakeholders and win trust by being more
open and disclosing more information,” he
says.
He adds: “Our stakeholders have to be
able to track us, not just trust us.” And so,
RBS has moved to quarterly financial
reporting, now discloses more financial
information to give investors a much better
feel, and includes detailed information of
previous write-downs.
Lloyds Banking Group, 43% owned by
the UK government, was unable to answer
Ethical Corporation’s questions. But in its
2008 corporate responsibility report, the
bank said it had communicated a “shared set
of values” since the government acquired a
stake. “We have the opportunity to create
one of the strongest and safest financial
Briefing: banks and finance 15Ethical Corporation • June 2010
Retail banks face rising
complaints
The UK banking groups responsible for over 70%
of customer complaints had a number of features
in common.
• Poorly designed staff incentive schemes.
• Inadequate complaint handling by staff
in branches and call centres, leading to
inadequate investigation into the problems.
• Poor decision-making and unsatisfactory
correspondence with customers.
• Complaint handling procedures that led to staff
issuing multiple, repetitive responses to customers.
• Failure to learn from previous complaints and
to make changes to prevent similar complaints
arising in the future.
Source: FSA
£4.15 owned by UK taxpayer
DREAMSTIME.COM/BASPHOTO
6. Pandit talks a lot about finance that is
“responsible and responsive to consumers”.
“In the US, our CEO is constantly rein-
forcing the importance of a return to
profitability through providing responsible
finance. He has talked about the importance
of Citi demonstrating it is contributing to
the economic recovery of the country,”
Flaherty says.
For Citigroup, responsibility means
direct action in the markets in which it
operates. For example, since the start of the
financial crisis in 2007 Citigroup has helped
824,000 consumers avoid foreclosure,
Flaherty says.
In May Citigroup launched a $200m
Communities at Work Fund to fuel small
business lending in low-wealth and low-
income US communities. The fund will
provide financing to both non-profit and
for-profit community development loan
funds that will then lend to local businesses
in low-income communities.
The bank will provide $199m of capital
through a combination of equity and loans,
with the Calvert Foundation and Opportu-
nity Finance Network contributing the
balance.
Executive pay continues to be one of the
most contentious issues following a crisis
that many attributed to greed.
Tom Powdrill, head of communications
for UK corporate governance adviser PIRC,
recently likened the market for high salaries
and bonuses to a “remuneration arms race”.
Lloyds’ remuneration report may,
depending on the performance of Lloyds’
shares, see chief executive Eric Daniels net
up to £6.2m in salary and bonuses over
three years. Lloyds’ remuneration report
was approved by 90% of shareholders at its
recent AGM.
Royal Bank of Scotland saw its remunera-
tion package approved by 99% of its investors
– a vote higher than in 2008. RBS chairman
Philip Hampton told shareholders at the
AGM that the bank would listen to investor
concerns over its new bonus scheme for
senior executives, which could net chief exec-
utive Stephen Hester a maximum of £4.8m.
Meanwhile the head of HSBC’s invest-
ment banking business, Stuart Gulliver,
received in March the largest bonus paid by
the bank: worth a whopping £9m. Gulliver,
who in addition to running HSBC’s global
banking and markets business and its asset
management arm is also head of the bank’s
operations in Europe and the Middle East,
was paid the stock bonus in addition to his
basic annual salary of £800,000.
HSBC, Barclays and Lloyds Banking
Group did not respond to Ethical Corpora-
tion’s repeated interview requests.
The British Bankers’ Association takes a
relaxed view of executive pay. “Banking is
global in nature and highly competitive,”
says the BBA’s Brian Capon. “The banking
industry in the UK is a world leader and
earns a great deal of income for the UK
economy.” He says that to retain this
position the industry needs to compete
internationally and that means employing
the best people, and to “provide a competi-
tive remuneration package.”
Bevis Watts, head of UK business banking
at sustainable bank Tridos, says banking
culture is too wrapped up in excessive pay
that is based on short-term targets. “We have
had a financial system that has been entirely
focused on short-term profit performance.”
Watts suggests that at most, people look
at business plan objectives for a bank over
three to five years. “But in actuality every-
body is focused on performance in the
current financial year,” he says.
Greed culture
The blame rests with payment structures,
Watts argues. “The way that bankers are
remunerated has to change because it is an
inherent part of this culture that supports this
great nonsense of greed and chasing after an
ever more unsustainable system,” he says.
Martin Lawrence is head of research at
governance advisory firm RiskMetrics in
Melbourne, Australia. He is hopeful the
global financial crisis alerted enlightened
shareholders to excessive pay packages.
“The big issue is huge cash bonuses and
guarantee for failure, but that’s not confined
to a bank, that’s in all industries,” Lawrence
says. But he points out that in reality very
few remuneration packages get turned over
at AGMs.
Lawrence says there is hope that
continual naming and shaming will rein in
some excess. “Board directors are timid crea-
tures on the whole. The threat of
shareholder opposition can be enough to
persuade them. At least that shows they are
being responsive.”
While pressure builds to limit executive
pay, some institutions are attempting to
leapfrog public outrage with innovative
compensation packages.
Goldman Sachs said in late 2009 that it
would pay top executives in restricted stock, a
Briefing: banks and finance16 Ethical Corporation • June 2010
Citi flying the responsible flag?
Executive pay continues
to be one of the most
contentious issues
7. Piechocki says. Customers become
members of the local cooperative Rabobank
branch and have a say in how the bank is
run through elected member councils,
which feed into the broader governance
network.
“We believe a company can only survive
[in] the future if sustainability becomes a core
part of the business – [if] there’s a solid
business case. Now you have to organise
your operations in a sustainable way. Other-
wise you lose to competition,” Piechocki says.
Triodos, the Financial Times Sustainable
Bank of the Year in 2009, has also benefited
from its lending practices and alternative
ownership. The bank says it finances compa-
nies, institutions and projects that “add
cultural value and benefit to people and the
environment”, that this is done with the
support of depositors and investors “who
want to encourage corporate social responsi-
bility and a sustainable society”.
Bevis Watts says sustainable banking is
based on three main tenets at the bank: how
the money is used; transparency; and
governance.
“We give an assurance to customers that
we will only be supporting projects that can
demonstrate they have a positive social and
environmental impact,” he says.
He argues that sustainable banking is
impossible without transparency, “both in
how you use the money – we have a Google-
powered website that you can search and see
all the organisations supported by the bank –
and in the products you offer customers”.
With governance such a high priority,
Triodos offers shares that are held in trust,
with shareholders receiving depository
receipts. Everybody has the right to elect
a board of trustees to represent that trust.
No organisation can own more than 10%
of the bank’s share capital, ensuring its
independence.
With all this in place, Triodos achieved
30% growth across Europe last year as the
mainstream banking sector contracted.
“The fact we are not exposed to the
wholesale money markets has been the key
to having that stability and ability to be able
to lend,” Watts says. He contrasts this with
what many other banks have done: vastly
leverage their balance sheets, borrowing
and lending funds beyond what they can
comfortably secure.
“They have become too big to have any
responsibility for the risks that they run. We
have ended up with a system that is too big
to fail,” he concludes. I
Briefing: banks and finance 17Ethical Corporation • June 2010
Ramping up responsibility
in response to crisis
Some leading banks have boosted responsible
practice as a response to the financial crisis.
• Royal Bank of Scotland’s commitment to
customer service has seen savings/mortgage
accounts grow.
• Danske Bank has developed a financial literacy
programme, and wants CR at the core of operations.
• Citigroup now helps customers avoid foreclosure
and kick-starts microfinance for low income
families.
• BMPS has been lauded for its online corporate
responsibility communications strategy.
Still big bonuses to be made at HSBC
Sustainable banking
is impossible without
transparency
HSBC
scheme that will defer compensation
expenses. The awards will consist of shares-at-
risk that start vesting in 2010 and can’t be sold
for five years. Goldman, which has repaid
with interest the $10bn it received from the US
Treasury, was derided for allocating a near-
record $16.7bn to pay employees in the first
nine months of 2009 after benefiting from
government support. Goldman Sachs did not
respond to interview requests.
The crux of the problem, critics say, is
that senior executives at mainstream banks
are not on the whole incentivised to priori-
tise sustainable business practices.
Dutch financial services group ING is
perhaps an exception, after announcing in
April the integration of sustainability into
the personal accountability and perform-
ance objectives of its senior management.
“To ensure that corporate responsibility
is an integral part of our corporate strategy,
our social, ethical and environmental objec-
tives will be quantified and used as a
measure of performance in the remunera-
tion policy of the executive board’s variable
pay programme,” the bank says.
An ethical umbrella
Rabobank’s head of corporate social respon-
sibility, Richard Piechocki, says the Dutch
bank – one of the 20 biggest banks in the
world – was virtually insulated from the
credit crunch.
The bank, which has a cooperative
ownership structure, was founded over 110
years ago as a rural credit cooperative by
Dutch farmers who sought to provide their
rural communities with access to fair and
sources of credit.
“Customers believed we were an island
in a rough sea since we have very strong
policies and avoid high-risk products,”
8. The global financial crisis that triggered
the failure of some of the world’s biggest
and best-known banks has led to fervent
calls for wholesale reform from investors
and civil society alike.
But change has been sluggish and
patchy at best. It has been held up by regu-
latory and political hurdles and the
reluctance by the banks themselves – most
of them beneficiaries of large public bailout
packages – to search for and deploy alterna-
tive business models.
Many social justice and environmental
campaigners see the financial sector’s
meltdown as a huge opportunity for funda-
mental reform of the way banks conduct
their business. But most are worried that
little has changed.
Ruth Tanner, campaigns and policy
director at anti-poverty campaign group
War on Want, says her organisation is
extremely concerned that the public is not
getting the fundamental change they are
demanding. “At the moment we are seeing
‘back to business as usual’ and back to bonus
culture and casino capitalism, which got us
into this mess in the first place,” she says.
She says that the City has been consid-
ered untouchable [by the UK government].
While some “tangible ideas” have been put
forward over the last year, such as tackling
tax evasion and taxing the banks to fund
development projects, “the banks have
fought very, very hard against what we are
calling for”.
Johan Frinjs, coordinator of Banktrack –
an international network of campaign
groups – says the bank sector is actually
moving in the opposite direction of reform.
“You would expect after the turmoil that the
banks would be looking at some very strong
policies, but mainly they aren’t and are
quite defensive.”
Tanner agrees the sector is not serious
about changing its business practices. “All I
have heard is PR spin on some very serious
issues, such as investing in the arms trade.”
She says that UK banks have been effec-
tively lobbying to oppose structural change
that would be good for the economy and
security, and “the rights of some of the
world’s poorest people”.
Leveraging public ownership
Campaigners in the UK and the Nether-
lands are keen to persuade their
governments to use their clout to reform
state-owned banks. These include UK banks
Royal Bank of Scotland (83% owned by the
government) and Lloyds-TSB (43%), and
ABN Amro, whose remnants were nation-
alised by the Dutch government after it was
bought in 2007 by a consortium of RBS,
Fortis and Santander.
The Dutch parliament released a report
in May that encapsulates the lack of
progress. The Report of the Parliamentary
Committee Inquiry Financial System says
the committee calls for “serious and critical
reflection” by all parties involved in the
financial system.
The report states that some of the impor-
tant factors that served as the causes of the
crisis in the financial system are still present,
both in the structure of the system itself and
in the culture and conduct of those within
it. “These factors could once again cause
problems in the financial system in the near
future,” it concludes.
And Banktrack’s Frinjs says: “ABN Amro
is planning to be the very same bank that it
used to be, rather than something that has
learnt from the monumental mistakes it
made. The culture hasn’t changed at all.”
Banktrack recently published a major
investigation into the business conduct of 49
global banks – Close the Gap – the third
study of its kind designed to stimulate the
development of world-class investment
policies by the banking sector.
Despite the turmoil caused by the global
financial crisis, the sector has developed
more policies covering more sectors and
sustainability issues. However, the overall
quality of these policies “still leaves a lot to
be desired”, the author of the report Jora
Wolterink says.
The key to all this lies in better trans-
parency. One environment, social and
governance researcher who preferred to
remain anonymous pointed out that no
banks report on their actual business.
Miners and oil companies report on the
impacts of their business, he says, but banks
Campaigning pressure
Short-changed on bank reform
By Oliver Wagg
Banking sector activists are concerned that the reforms being promised
do not go far enough
Briefing: banks and finance18 Ethical Corporation • June 2010
ISTOCKPHOTO/ZIUTOGRAF
9. St Vince to the rescue?
Hope for tougher bank regulation in the UK
emerged in May with the appointment of Lib Dem
Treasury spokesman “Saint” Vince Cable – hailed
by right and left as a prophet who predicted the
banking crisis – to the post of business secretary in
the new coalition government.
Lib Dem policies have tackled the area of finance
sector regulation, supporting a tax on financial
transaction, a new green investment bank and inter-
vention to curb speculation through breaking up
the banks. At its conference in 2009 the party laid
out policies to end taxpayer support for Royal Bank
of Scotland’s investments in tar sands extraction.
“Introducing these policies from the outset
would signal a real commitment to cleaning up
the mess that the financial crisis has left Britain
and the world in,” says Deborah Doane, director
of the World Development Movement.
Kevin Smith, co-director of Platform says: “Vince
Cable needs to ensure that the reform of the banking
sector involves addressing environmental as well as
financial sustainability.” He argues that the new
government’s plans for a green investment bank will
be dramatically undermined if it continues to allow RBS
“to use public money to support and expand carbon
intensive industries and operations around the world”.
But just days after the new coalition government
was formed, reports emerged that the new chan-
cellor of the exchequer, George Osborne, will take
responsibility for reform of Britain’s banks and not
the Lib Dems’ Cable.
The Treasury is to remain in charge of banking
policy and the financial services sector, with Osborne
chairing a key cabinet committee that would
commission a top-level report into the feasibility of
splitting the “casino” investment banking arms of
banks from their mainstream high street operations.
The parties agree that a banking levy will be intro-
duced and state that they will bring forward detailed
proposals for robust action to tackle unacceptable
bonuses in the financial services sector. “In developing
these proposals, we will ensure they are effective in
reducing risk,” the new government says.
19Ethical Corporation • June 2010
“generally report on admin, not their core
business. A lot of banks tend to win awards
for their sustainability reports, but this is
nonsense.”
A taxing problem
A significant portion of the criticism levelled
at the banking sector focuses on the myste-
rious ways some conduct their tax activities.
Consequently banks have a great deal to
gain by lifting the shroud of secrecy,
campaigners say.
The stakes are high. Taxing Banks, a
submission to the IMF by Christian Aid, the
Tax Justice Network, UK trade union
movement the TUC and others estimates
that recommended measures to tackle corpo-
rate tax avoidance by banks might raise
existing yields by 50% to $180bn worldwide.
The potential revenue streams from
enhanced bank reporting on customer
activity are much greater still: a significant
proportion of the current estimated $255bn
lost to tax evasion as a result of bank opacity
might be recovered.
Christian Aid’s chief policy adviser, Alex
Cobham, says tackling the root cause of the
global financial crisis would help stamp out
tax evasion, which has huge potential for
alleviating poverty in developing countries.
Cobham argues that financial secrecy not
only reduces the tax base, it also distorts
economic and social processes. “Effectively
it tips the balance within a developing
country away from giving people incentives
to invest and carry out genuine productive
economic activity and towards things that
involve them taking their slice of the cake,”
he says.
With the G20, OECD and the IMF all
starting to scrutinise these issues much
more closely, there is an opportunity for the
banking sector to be seen to be clean.
For most banks this isn’t a great part of
their business – there are some banks,
probably a minority, where tax avoidance is
a particularly large part of their business. But
for most banks the reputational risk of being
seen or revealed to have been involved in
tax evasion is probably quite large compared
with any financial benefit. I
Briefing: banks and finance
Leaders try to get tough
Banks have a great deal to
gain from lifting the shroud
of secrecy DREAMSTIME.COM/MARKWATERS
High hopes for Vince Cable