Bank Regulation: the answer is transparency

If you haven’t seen yesterday’s epic rant by Paul Mason, Channel 4’s economics correspondent, do now.

But there’s a problem with regulation: it doesn’t work. 

Regulators are never as well-resourced as the banks. So they can’t afford to employ the smartest people. Or not for long, anyway – a good career move is to spend a year or two working at a regulator, then move into compliance with a major bank. Gamekeeper turned poacher.  When you work in compliance at a bank, you’re not a policeman – you wouldn’t last long if you kept on preventing profitable deals (the ones that in the end go to paying your salary).  Your job is to provide the whitewash.

So there’s a brain drain from the regulators to the banks. What’s more,  much of  the young talent working in the regulators has an eye on this career path so won’t do anything to mess it up.  Like get involved in pursuing an enforcement case against a possible future employer.  And the regulators really don’t like pursuing enforcement cases, particularly not criminal ones. The lawyers are lining up on both sides to take their fees, and the banks won’t skimp on paying for the best. If the regulator loses, there’ll be questions asked in Parliament about the waste of taxpayer’s millions, and the banks will be saying “we told you we were perfectly innocent”.  If the regulator wins, the bank puts the cost down as a routine cost of business and fires the compliance officer for failing to apply enough whitewash.

And what were the auditors at RBS doing? Who appoints them? Duh.

There is an answer, though. Less regulation, more transparency.  Much, much more transparency.  So much transparency that it completely changes the way the City works.

No secret deals.  A secret deal is a dodgy deal, so make unenforceable any deal that has any element of secrecy. 

Publish everything IN REAL TIME.

Let us be the auditors with a GoogleBot.

If I can’t find out everything about a deal as it happens,  from my smartphone in the cafe over the road, it’s not transparent enough.

It’s how it used to be.

Well, not quite. But trading was much more public when it was by open outcry on public trading floors. Deregulation and electronic trading came in at about the same time.  Before then, honour – “my word is my bond” – and as much transparency as the technology of the time afforded kept all but the most egregious cases under control.

(And read Stiglitz).




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