Saturday, July 13, 2013

A bold blueprint for banking reform

Several committees have gone into the financial crisis and come up with prescriptions for avoiding such disasters in future. Except for a modest increase in capital requirements, some proposed restrictions on proprietary trading in the US and an attempt to ring-fence retail operations in the UK, we have not seen any significant reforms so far. Reforms that will radically change the way banks will be run.

It was a pleasant surprise, therefore, to see a report from UK's Parliamentary Commission on Banking Standards that squarely addresses basic issues in the functioning of the banks- the accountability of bankers, incentives in banking, the role of bank boards, culture and standards in banking, competitiveness in UK banking, the privatization of  RBS and Lloyd's, etc.

Anybody interested in the governance of banks should peruse this two-volume report- they are a terrific read. The reports have gone almost unnoticed in the Indian media. After going through them, I was left wondering how a parliamentary commission could have come up with such an insightful report where expert bankers, regulators and economists have fared not so far. I guess it's not a matter of knowledge but of intention or sincerity. Bankers have their own axes to grind when it comes to reform; they have been thwarting serious reforms since the crisis. Regulators and academics are prone to capture by business lobbies.

Politicians are not exempt from capture either. It's just that the public mood towards bankers is so sour, especially in the UK and the rest of Europe, that politicians cannot afford to ignore it. I have said this before and will say it again: there is accountability in politics in a way there isn't in the corporate world or amongst professionals such as lawyers, doctors, accountants and even academics.

I have analysed the report in an article in the Hindu, Making bankers pay for failed gambles. I have strongly recommended that many of the proposal for reform proposed by the Commission should be embraced by the RBI.


Sujatha said...

I was pleasantly surprised to read your article in The Hindu on Friday.
As a person overseeing quality of education I can vouch for the fact that teachers can get away with murder( of the psychological kind)on their unsuspecting victims 'the students' unless checked for it.
As you had rightly mentioned in your book it is tough to check quality in academics, for most administrators it is the marks that is the deciding factor. I also believe it is only accountability that can make one deliver the best results.

T T Ram Mohan said...

Sujatha, I couldn't agree more with what you have said. Unfortunately, we seem to be in a minority.


Chelsey said...

This is cool!