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OPINION

Bank regulation hots up

Bank regulation hots up
December 14, 2012
Bank regulation hots up

Lord Stevenson ended up in this dreadful position for two reasons. First, the publication of his letter dated March 2008 to the Financial Services Authority which argued that HBOS had managed the credit cycle well, its brand and reputation were solid and his bank was in as safe a position as possible. It was in fact already suspected by Stevenson's peers that his bank was history. But it wasn't just the letter. What really got Lord Lawson's goat was Lord Stevenson's insistence that his major error at HBOS had not been to oversee a mountain of bad lending, but to fail to see that the wholesale markets from which the money was being borrowed to make all the bad loans could close down.

Now that is a category error if ever there was one. Three times, Lord Stevenson argued that restraining the growth of HBOS lending "would not have made any difference" … to the demise of HBOS. And that is STILL how he sees it, apparently. Hence Lord Lawson's charge was in fact in the present tense: "You ARE [my emphasis] living in cloud cuckoo land, aren't you?"

Read Lord Stevenson's session with the Committee yourself. It's available as a PDF from parliament.uk/bankingstandards.

In fact, the pathos verges on bathos, since Lord Stevenson was of course for eight years also the chairman of Pearson, owner of the FT (and the Investors Chronicle). I have never met Stevenson but from afar he always seemed to me as irreproachable as FTSE chairman get. He was not a swaggerer. He wasn't a backslapper. He wasn't always pushing the pay-envelope. Rather, he was at the thoughtful end of the personality spectrum. He had an impressive career-long CV that said he had reached the highest echelons on his own merits. Six years ago, if you had been worried about bankers getting beyond themselves, he would have been precisely the sort of person who would have given you a bit of comfort. I'll bet he was the sort of person Alan Greenspan had in mind when he argued that the reason financial markets should be trusted was that bankers would never wilfully injure themselves.

The fact that the reverse is true has been laid out before us time after time after time, but rarely so poignantly as in this Parliamentary session. Intriguingly, Sir James Crosby - HBOS' chief executive during the first part of Stevenson's chairmanship - seemed far more appreciative of the bank's errors during his leadership when he had his own session with the committee. Crosby was one of the luckiest escapees of the banking crisis, leaving before anyone realised what he had set up. He recognised the damage done to his reputation by the subsequent collapse of HBOS. Maybe, in the spirit in which poacher Joe Kennedy turned gamekeeper founder-chairman of the SEC in the wake of the Wall Street Crash, Crosby the penitent could have something to offer the regulators now struggling to define a new regime.

Meanwhile, the Bank of England and the Federal Deposit Insurance Corporation - which looks after stricken US banks - came up with a joint proposal about how they would deal with any future casualties among the 12 "Global Systemically Important Banks" headquartered in their two countries. This development moves them ahead of the Financial Stability Board, which is the G20- appointed regulator for this area. The FSB - which happens to be led by the Bank of England's next boss, Mark Carney - is energetically pursuing its brief. It makes at least five significant announcements a month. But it is trying to bring agreement among 20 countries. I would suspect it must be heartened to see the two most important countries set out their own proposals.

Many commentators point out that the new restrictions on banking will be costly to us all. In fact Allen & Overy, the leading City lawyers, has just published a report along these lines.

I wish some of these people would preface their views on the cost of the new regulations with a reflection on the cost of the old ones.