RegulationApr 17 2013

Time for change in banking

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ByAndre Spicer

We live in strange times indeed when the most talked about publication is not a new celebrity biography, prize-winning novel or celebrity chef cookbook, but a report about the technicalities of banks.

Two weeks ago the press headlines were dominated by the Salz review into Barclays and the report on HBoS by the parliamentary commission on banking standards. Usually these reports on banking are little more than a great cure for insomnia but the Salz review and the HBoS inquiry were quite different. They are riveting reads that lay bare the inside story of the financial crisis and have reignited the public debate about what went wrong during the financial crisis.

There are some striking similarities between the Salz review and the report on HBoS. Both highlight the role of a sale and growth focused culture in laying the foundations for financial crises. Both underline the lack of regulatory oversight and emphasise the need to strengthen corporate governance measures.

But the Salz and the HBoS inquiries are two very different beasts. Anthony Salz was commissioned by a bank that was wounded by a series of scandals, but is taking active steps to heal itself. It paints a picture of a bank that was too clever for its own good. In contrast, the inquiry into HBoS was conducted by hostile parliamentarians picking over the corpse of a dead bank and it reveals an organisation marked by deep incompetence.

The HBoS inquiry is a scapegoating exercise. In contrast, the Salz review asks how a living, breathing bank might change its ways for the better.

The Salz review was commissioned by Barclays following the revelation that traders in Barclays, as well as other banks, manipulated the Libor rate. This sparked public outrage, fines from regulators and the resignation of the chief executive.

Part of Barclays’ response to this increasingly tough spot was to commission Mr Salz, a widely respected City lawyer, to undertake a review of the organisation. With the help of the Boston Consulting Group, 600 interviews and £17m, Salz produced a 236-page report with a list of 34 recommendations.

The report begins by reminding the sceptical public of the importance of banks, and Barclays in particular, to the UK economy. It then goes on to trace the fate of the bank during the long financial boom up to 2007, the bank’s response to the financial crisis (including the acquisition of parts of Lehman Brothers), and the subsequent scandals it has faced, such as the manipulation of Libor and the mis-selling of payment protection insurance.