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Pursuit of knowledge
ifs School of Finance’s James Tobin looks at the
The Treasury Committee’s Report
considered how regulation and supervision
‘Banking Crisis: regulation and supervision’
have changed, and can be further
improved, in order to return to and
report by the Treasury Select Committee
maintain more stable banking.
The Report recognised that the
regulatory philosophy of the FSA has
changed. It is now far less trusting of
banks’ ability to make the right decisions
left to their own devices. It has less faith in
market forces than before; it is more
willing to challenge firms’ business
eldom has the role of non- but on ‘just-in-time’ learning or provision that
executive directors and senior would comply with minimum regulatory
decisions; it now considers the
managers within the financial requirements. With an increased focus on
competence of new bank directors and
services industry come under sales, bankers with traditional qualifications
appears more willing to remove ‘the
such scrutiny. The report by the have become increasingly rare in many of the
punchbowl from the party’. However, the
Report also emphasised that the real test
Treasury Select Committee larger banks as development and remuneration
for the FSA will be when the boom years
(‘Banking Crisis: regulation and has became focused on selling product, rather
return. By then, the organisation must
supervision’) in particular demonstrated the than traditional functions.
have developed the confidence to take
lengths to which the financial crisis has
unpopular decisions in the face of
highlighted the role of senior management and Challenge
potential resistance both from industry
effective corporate governance, and the way in The challenge now is in addressing this
and politicians.
which issues like risk and liability are balance, and ensuring that senior management John McFall, Chairman of the
addressed. and non-Executive Directors are equipped Committee said: “By any measure the FSA
Alongside its recommendations on the with the skills and understanding that enable has failed spectacularly in its supervision
future of the banking sector however, it was them to effectively supervise increasingly
of the banking sector, but it has
revealing that the Select Committee report also complex organisations. In regards to corporate
acknowledged this and already begun to
focused on the need for directors and senior governance in particular, both independent
rectify its mistakes. The change of
managers to hold the relevant skills and directors with a non-banking background and
philosophy since Lord Turner’s arrival and
experience to provide effective oversight, and specialists from within the financial services
the launch of the Supervisory
whether this could be best delivered and industry who wish to then take on very senior
Enhancement Programme show that the
enhanced through formal qualifications. management roles, must have a comprehensive
organisation is moving in the right
understanding of the structure of complex
direction. However, all this is very
Appropriate qualifications businesses and products, and couple this
fashionable now; the FSA must develop
This is arguably not before time. In particular understanding to a real comprehension of the
sufficient teeth in order to be able to go
against the tide in the future and take
the recommendation from the Select nature of risk and the role it plays in the
unpopular decisions.”
Committee that appropriate qualifications outcomes of the decisions made by senior
Many banks are systemically significant
should be a core indicator when assessing bank management.
because they are too big, they conduct
practitioners' competence and suitability for a Qualifications can undeniably help to meet
many types of business, or they are too
particular role seems like a statement of an this need. Access to training and formal
complex and interconnected. The Report
obvious truth. After all, in few other learning can not only help to embed the addresses each of these issues in turn,
professions, from law to accountancy, would essential core knowledge to operate effectively concluding that though it is unlikely that
qualifications not be viewed in a similar light. at a senior level, but will enable Non-executive all banks could be shrunk to a size where
However, while there have been some directors in particular to develop the skills they posed no systemic risk, the
notable exceptions, the reality is that during necessary to provide effective oversight, and to
Government can and should still act. First,
the past decade the banking sector in the UK maintain industry awareness and an up-to-
it should ensure that there are no banks
has not been as diligent as it might have been date perspective of the ever-fluid financial
which are ‘too big to save’. It should also
in pursuing appropriate professional services landscape.
review the wisdom of allowing a banking
education. The confluence of a range of There has already been an encouraging and
market to be dominated by firms whose
factors, such as growing specialisation and positive response from many within the
balance sheets are larger than the
increased graduate recruitment led to a industry. Organisations are recognising the
national economy. Second, banks must not
dramatic change in staffing culture and importance and value of having all of their
operate under any incentive to grow large
capability. practitioners educated to the highest levels,
just in order to benefit from the status of
Education arguably became focused not on and with the appropriate expertise and
being ‘too big to fail’. The Report suggests
that this market failure be addressed
building a long-term professional capability, understanding.
through a ‘tax on size.’
September 2009 Mortgage Introducer
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