The Securities and Exchange Commission's decision to investigate JPMorgan's hiring of so-called princelings only serves to add to the argument that regulators are being overzealous in their supervision of banks.

Just as the banks were way out of control in the boom years, so now are regulators starting to pursue the banks with little regard for where things might all end up. 

The news (first reported in the New York Times) that the Securities and Exchange Commission (SEC) is investigating JPMorgan over its hiring of the sons and daughters of senior Chinese officials and whether this relates to the bank’s gaining of China business, raises all kinds of alarm bells. Newspapers reporting on the case have emphasised how guanxi, or personal connections, oil the wheels of commerce in a country such as China. They remark that many top US and European banks have hired these so-called princelings and that this is standard business practice in China.

Only in China?  An unhealthily close relationship between government officials and companies, and a penchant for repaying business favours through patronage are hardly confined to China. In the Western democracies a great deal of lip service is paid to the idea of a meritocracy, yet we all know of cases where a senior appointment is related to favouritism, contacts or some other benefit (apart form sheer skill and industry) that the party brings to the table.

What about the tendency of major companies to hire senior politicians when they leave office? Is that all about finding the best person for the job? Or do we accept that having contacts and the ability to open doors is a skill worth paying for? In which case, is the hiring of princelings (with their parental contacts) so very different?

According to the New York Times, the SEC document did not reveal a direct link between JPMorgan’s hiring policy and any business that followed. It has also not been suggested that those hired by JPMorgan were unsuitable for their jobs or that they helped the bank obtain business. JPMorgan has not been accused of wrongdoing and says it is co-operating fully with regulators.

The real point, however, is the impracticality of any such clampdown. Just as moves by European regulators to restrict pay in banks are fraught with practical difficulties so it will also be true that if regulators start stipulating who they can hire, and why, they may be driving banks into another cul-de-sac. Is anyone with connections barred from joining a bank?

Such moves are also bad for US firms’ international business prospects. The tendency for the US to engage in extraterritoriality in its tax and business policies – in this case the Foreign Corrupt Practices Act – is going to be ever more problematic as the US becomes one of several global powers rather than the sole superpower. Much better if they all get together and agree on the rules rather than going it alone.

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