Quote:Carney switches Bank of England focus to conduct risks

Mark Carney, the Governor of the Bank of England, has warned senior bankers that conduct costs related to past misbehaviour have become the most pressing issue for the industry


Mark Carney, the Governor of the Bank of England, has privately warned bankers that conduct costs are the biggest problem facing the industry Photo: Rex Features







By Harry Wilson, Banking Editor

8:00PM GMT 26 Jan 2014

Mark Carney, the Governor of the Bank of England, has told a group of senior bankers that dealing with the legacy of past wrongdoing is becoming the most pressing issue for the industry.

Mr Carney is understood to have discussed the growing problem of conduct risks with Douglas Flint, chairman of HSBC, Peter Sands, chief executive of Standard Chartered, and Deutsche co-chief executive Anshu Jain, in a private session at the World Economic Forum.

It followed a lunch at the Davos event at which the Governor warned that financial institutions must not see fines for misconduct as "a cost of doing business" and said only "exemplary behaviour" would restore trust in the industry.

"While regulators will fix the mechanics of benchmarks in markets ranging from Libor to FX [foreign exchange], only private individuals and institutions can reform the behaviour that has made such changes necessary," said Mr Carney at the lunch hosted by the CBI.

"Changes to the structure of compensation will better align the incentives of bank staff and their shareholders, but not every risk can be anticipated," he added.

At a series of private meetings, Mr Carney is understood to have repeated this message to industry executives amid fears over the rising cost of regulatory fines.
Over the past 12 months, major banks have paid out tens of billions of pounds in fines and compensation for their past wrongdoing, such as manipulating benchmark global interest rates, selling toxic mortgage-backed securities and mis-selling overly complicated financial products to business customers.
Senior figures at the Bank of England have become concerned at the increasing cost of these penalties and dealing with conduct problems has replaced raising new capital as the main focus of the authorities.
Research by the London School of Economics found that between them 10 of the world's largest banks, including Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland, have paid out about £143bn in "conduct costs" since 2008, equivalent to five years of dividend payments to share-holders.
Analysts at UBS estimate that the banking industry could still be facing further costs of between £30bn and £42bn, with new fines for Libor, as well as investigations under way into the alleged rigging of global foreign exchange markets. These costs exclude potential civil lawsuits connected to banks' misconduct.
Barclays is facing in April what is seen as a test case over its involvement in attempts to manipulate Libor brought by care home operator Guardian Care Homes. The company claims the bank mis-sold it a series of derivatives linked to interest rates. Barclays is defending the case and has said the claim is without merit.
RBS is defending a £4bn claim from investors over a £12bn rights issue in 2008, with shareholders, including several institutional funds, claiming the lender did not provide them with important information on the deterioration in its financial performance.

David Guyatt Wrote:I particularly like Carney's statement that the banks mustn't see fines as a "cost of doing business".

Ergo: that's exactly how they see it. They make a handsome net profit after paying the fines.

Telling them to behave isn't going to make a dent in their profiteering. Money speaks louder than morals.

Quote:Doesn't the world really need a digital CEO? We are moving to computerized call centers and even have computers that can simulate therapists. Surely it isn't hard to write a program that fires people right and left (the Chainsaw Al module) or the more upscale version that hires McKinsey or some less fancy firm to "rightsize" the company. You need a program that has decision rules as to what to do with excess corporate cash flow. Since there are only two choices, buying back stock or paying dividends, it shouldn't be that hard to work it out. It will also need to be able to detect when questions are taking a legalistic turn and automatically disconnect from the hard disk and work only off an auxiliary drive. And think of all the money you save! No possibility of sexual harassment suits or insider trading scandals. And all the big bonuses the synthetic CEOs negotiate for themselves can be split between the company and the inventors. And of course you can order personality overlays, like arrogant/pushy (the Dimon/Benmosche flavor), smooth and super corporate (Ken Chennault of Amex style), nerdy, and young digiterati.

Lauren Johnson Wrote:

David Guyatt Wrote:I particularly like Carney's statement that the banks mustn't see fines as a "cost of doing business".

Ergo: that's exactly how they see it. They make a handsome net profit after paying the fines.

Telling them to behave isn't going to make a dent in their profiteering. Money speaks louder than morals.

There has to be a way to monetize "conduct risk" so that it is irrelevant. Remember, Wall Street and presumably The City figured out a way to take on as much risk (Collatorized Debt Obligations) as one liked as much as it liked just so long the CDO's were paired with CDS (Credit Default Swaps). Somebody could make a lot of money writing Conduct Disaster Swaps for fat fees. Just having these guys employed would be the long end of the trade.

Oops. I just realized the problem with this -- there would be no tranches, since there would be only one tranche -- the just-don't-get-caught tranche.