"It remains the ungrateful job of the supervisors to save the banks from themselves." The words of Martin Taylor, external member of the Bank of England's financial policy committee, in a speech last week when he rejected growing calls for a softening of bank regulation.
That such a statement needs to be made reflects the shifting mood music in some parts towards the major UK lenders. The cocktail of bank levies, misconduct fines and disruptive regulation has stoked sympathy for the sector. A Financial Times editorial demonstrated the growing backbone of the City, railing against the idea of banks as a "convenient source of consequence-free cash" for regulators and governments.
Last week six global banks were fined $5.6bn (£3.6bn) for rigging foreign exchange markets, including Royal Bank of Scotland (RBS) and Barclays (BARC). This lifted shares in both banks, which we have on buy tips, as the fines came in lower than expected and the uncertainty over the levy evaporated. It is more than four years now since then Barclays chief executive Bob Diamond said the "period of remorse and apology... needs to be over". But it is still early to agree with Mr Diamond just as the first trial kicks off over alleged Libor manipulation, with a second scheduled for later this year.
Even if the banks can bring the period of apology to a close, the next paradigm will be one of greater regulatory oversight. The government-established Fair and Effective Markets Review reports next month, and is expected to extend bans on market manipulation to areas such as foreign exchange, according to the FT. This could include tackling the issue of banks profiting from pre-empting client orders, and recommending longer prison sentences for perpetrators of market abuse.
Scrutiny is growing. Last week the Financial Conduct Authority released the details of its forthcoming market study on competition in investment and corporate banking. The probe will include a focus on transparency in the allocation process of debt and equity issues, and the impact of market practice and regulation on the IPO process. Meanwhile, the Bank of International Settlement has announced it will set up a working group to establish a single global code of standards for the foreign exchange market.
