As the world's financial community gathered in Istanbul for the IMF/World Bank annual meetings, there was a look of relief on bankers' faces. Bumper profits are back at some of the leading investment banks, while government loans and capital injections are being repaid. Decrying regulatory overreaction or populist attacks on bonuses, many seemed satisfied with a return to 'business as usual'.
But there were dissenting voices, and not just those of protesters waving red flags outside the convention centre. Malcolm Knight, former head of the Bank for International Settlements and now vice-chairman of Deutsche Bank, knows a thing or two about systemic risk. And Scotiabank CEO Rick Waugh heads one of a select group of banks that have emerged from the crisis with reputations enhanced, rather than demolished. Both expressed concern that the momentum for further reform of global financial system architecture is already flagging, as banks recover and governments are absorbed by election campaigns and their own balance sheet crises.
No time for naïvety
Of course, the return to health of an investment banking sector that seemed at death's door less than a year ago should be welcomed. But the idea that a response to the crisis should consist of little more than sacrificing a few CEOs, tweaking a few regulations and risk management policies and pontificating about bankers' pay is naïve.
Bankers' salaries change little if the banks they lead remain too big to fail and too big to run. It is striking that central bankers and regulators recently appear to have become more radical than politicians in this regard. Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, wants a contingency fund ready to finance the orderly liquidation of any doomed banking giants in the future. And Bank of England governor Mervyn King has warned policy-makers not to rule out the break-up of some of those giants if they remain too big and too interconnected to manage or supervise adequately.
Bank CEOs are naturally empire-builders - that's how they get the top job. But they have for decades championed politically independent central banks and regulators as the means to ensure financial stability. That stability must never again be taken for granted, and it is churlish to challenge those self-same independent authorities when they try to stop the empire-building instincts going to excess.
