It might be tedious and expensive but accommodating new banking regulation is a necessary evil for the industry.
Excess regulation has become the bête noire of many a banker. Listen to Sir John Bond, chairman of HSBC in May, complaining about spending $400m on regulation. To put this into perspective, HSBC is the second largest bank in the world, with operations in 79 countries and a reported $12.8bn of pre-tax profits in 2003. The required 3% is not that large an amount, relatively speaking.
Sir John went on to say that you cannot impose trust and integrity from outside, a true statement, and one that Jacob Wallenberg, chairman of Swedish bank SEB, agrees with (see page 18 for Viewpoint).
However, bank regulation is not an attempt to impose trust and integrity. It is an attempt to stop conflicts of interest and abuse.
Take some of the latest scandals in different countries reported in the press.
Deutsche Bank – lead managers of the Postbank IPO, along with Morgan Stanley – was a potential bidder for the bank. It is not clear whether this came about because of a call from Chancellor Gerhard Schröder in April, but in any case, Deutsche Bank did consider it. It is unbelievable that at the same time as it ran a slide rule over the possibility of an acquisition it continued to manage the IPO.
At a retail level, look at the recent enquiry by the UK’s Treasury Select Committee, optimistically titled ‘Restoring Confidence in Long-Term Savings’. The sorry tale of mis-selling to the uninformed continues, with stories ranging from split capital investment trusts to precipice bonds. Lloyds TSB, for example, one of the UK’s top banks, has already been subject to a record fine and been forced to pay £98m in compensation to investors.
A similar tale is taking place in the US with, among others, its mutual fund trading scandals.
Sir John also said in May: “Sensible regulation is fine, not all regulation is sensible.’’
That may be true but even excessive regulation is better than another banking scandal.
