One of my enduring memories of the last recession is of Robin Leigh-Pemberton, the then Governor of the Bank of England, giving evidence to MPs over the collapse of the Bank of Credit and Commerce International (BCCI) in 1991.
Quizzed as to whether the bank had any inkling as to its dubious accounting, Leigh-Pemberton at first said there hadn’t been, before admitting that he had been aware that BBCI had the nickname “the Bank of Crooks and Criminals International”.
As we head through another economic crisis, we can be assured that the duty of regulating banks now falls to a much more professional organisation. Or rather, that was how things were supposed to turn out when the government handed the duty to an expanded Financial Services Authority (FSA) in 2000.
In 2004, the FSA was given the additional job of regulating mortgages, which was supposed to provide protection against the lax lending practices of the eighties’ housing boom and bust.
The result? The first run on a bank since Victorian times; numerous collapsed company pensions schemes; two failed banks, several more saved in dramatic rescues by other banks; an explosion in sub-prime and self-certified mortgages, with huge default rates; and, for the first time in living memory, savers genuinely worried about the safety of their hard-earned money.
Good work, chaps.
On one thing all political parties now agree: financial services must face tighter regulation. But what’s the point when the existing regulators are so useless?
It isn’t hard to work out what will happen: the FSA will be given even more than the £300bn it eats its way through each year. The CEO will get even more than the £661,948 in pay and benefits he received last year. And, shorn of their bad debts through a government bail-out, the banks will carry on just as they did before.
One of the FSA’s great achievements, listed in its 2008 annual report, is to lift the compensation available for savers with deposits in collapsed banks – from up to £31,700, to £35,000. Small beer compared with the pay you can expect if you lose your job at the FSA because you fail to assess the lending practices of a bank which then goes belly-up.
In April, Clive Briault, MD of the FSA’s retail business unit, left with £356,452 of amends for lost salary and bonuses, £36,000 of pension contributions and £202,500 for compensation of loss of office.
Maybe I am just a miserable old scrooge, but if you lose your job because you weren’t doing it properly, how come you get paid whacking bonuses? The government wants to crack down on bankers’ bonuses and companies that pay executives “rewards for failure”, yet the FSA is brazenly doing just that.
To be fair, CEO, Hector Sants, admits that the FSA was caught napping over Northern Rock. “The standard of supervision of Northern Rock last summer was not acceptable either to myself or the FSA,” he writes in the latest report.
He has promised to do better and the FSA has generously decided to increase his pay from £482,829 in 2007 to £661,948 in 2008, in anticipation that he will succeed.
There is at least one FSA success I can report. It moved rapidly when a pension fund was found to be £91.6m in deficit. Thanks to the FSA, some hard-working employees will not suffer the same fate as thousands who lost out when their former employers went under.
Who are these lucky people? Why, no other than the FSA’s own staff, whose final salary pension scheme has just been featherbedded with an extra £3.4m of taxpayers’ cash.
As the FSA admits in its report, it’s been a tough year. But life should be more rewarding next year, what with all that extra regulating to do.
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