<nettime> Haldane, Occupy, and the path to reform.

[Fran Ilich <ilich@sabotage.tv>]

Haldane, Occupy, and the path to reform
Lisa Pollack	| Oct 30 13:53 |
http://ftalphaville.ft.com/2012/10/30/1237921/haldane-occupy-and-the-path-to-reform/

On Monday night, FT Alphaville had the pleasure of chairing a discussion on “Socially Useful Banking“. The key speaker was none other than Bank of England’s executive director for financial stability, Andy Haldane. His speech was entitled “A leaf being turned“.

Since we were there for the evening, and moderating the lively Q&A, it’s been interesting to see what angles the papers have taken on it. Here-under a headline digest:

BoE’s Haldane says Occupy was right – FT

BOE’s Haldane Tells Occupy Libor Furor Prompted Change – Bloomberg

Bank of England’s Andrew Haldane: Occupy played key role – BBC

Occupy protesters who camped at St Paul’s Cathedral were morally right to attack financial system, says Bank of England official – Daily Mail

Occupy protesters were right, says Bank of England official – The Telegraph

Bank of England official: Occupy Movement right about global recession – The Guardian

UK banks begin to turn over new leaf – BoE’s Haldane – Reuters

Top Bank of England director admits Occupy movement had a point – The Independent

Haldane, in many ways, struck a cautiously optimistic note. But first he noted that for much of the history of banks like Lloyds and Barclays, no one questioned their social usefulness (emphasis ours):

They extended loans to businesses and helped families buy homes. Nationally and regionally, they were part of the social fabric. Today, that fabric is torn.

As for what Occupy has done, it has “entered the collective conscience of the public and policymakers”. This despite the suggestions of some that “Occupy’s voice has been loud but vague, long on problems, short on solutions.” The conclusion to which Haldane came (underlines his):

I wish to argue tonight that both are wrong – that Occupy’s voice has been both loud and persuasive and that policymakers have listened andare acting in ways which will close those fault-lines.

The money lines for a lot of the headlines we are seeing (emphasis ours again):

Occupy has been successful in its efforts to popularise the problems of the global financial system for one very simple reason: they are right.

By this I do not just mean right in a moral sense. For sure, Occupy have touched a moral nerve in pointing to growing inequities in the allocation of wealth and incomes globally.

Haldane then continued to explain how the crisis exacerbated rises in inequality in advanced economies. He also cited a study by BIS researchers (that FT Alphaville covered previously) that attempted to measure the costs to an economy of a large, and growing, financial sector as resources are drawn into it.

What we are left with, in the aftermath of the crisis, is a collection of too big to fail banks with an implicit subsidy from the governments that have backstopped them with taxpayer funded bailouts.

Before getting onto what’s to be done about it, a poignant message for banker-bashers (underlines his, bolding ours):

But, as disappointing as this might sound to some of you, in building a new financial system I think there are limits to what can be achieved through a “heads on sticks” strategy. For me at least, the financial crisis was in the main not a story of individual fallibility, greed or hubris.

There are 400,000 people employed in banking in the UK. The vast majority of those, perhaps even 99%, were not driven by individual greed and were not professionally negligent. Nor, even in the go-go years, were they trousering skyscraper salaries. It is unfair, as well as inaccurate, to heap the blame on them.

For me, the crisis was instead the story of a system with in-built incentives for self-harm: in its structure, its leverage, its governance, the level and form of its remuneration, its (lack of) competition. Avoiding those self-destructive tendencies means changing the incentives and culture of finance, root and branch. This requires a systematic approach, a structural approach, a financial reformation.

(He earlier notes that it is, of course, important to punish negligence and criminality.)

As for what that reformation will involve:

I want to argue that we are in the early throes of such a financial reformation. And that this will help to deliver a more socially useful banking system. Let me mention some of the more important of these reform strands. These fall into five categories – the five “c”s: culture; capital; compensation; credit; and competition.

Furthermore:

Individually, none of these reforms may sound like a game-changer. A number lack the pizzazz of a “tar and feathers” strategy. But taken together, I think they amount to the most radical agenda of financial reform for 80 years. Importantly, I also think they will work.

“Culture” involves things like the Volcker rule, the Vickers proposals in the UK, and Liikanen plans in Europe. “Capital” in terms of Basel III and systemic risk charges. “Compensation” to stop short-termism and tame risk-taking. “Credit” as a component of the economy rather than a force destabilising it. “Competition” particularly in the retail banking sector, to encourage new entrants and raise the bar overall. (More detail on all of these in the speech itself.)

On the last point, Haldane spoke of a utility that could be set up in the UK to store customer information, making it easier to switch from one bank to another, thereby promoting competition. There was this call to action for consumers of banking services:

For banking, this is back to the future. If that sounds attractive, then it is down to us – not regulators, not politicians, you and I – to deliver it. If as bank customers we want to change the culture of banking, then we should start by supporting those banks who are delivering that change.Putting your money where your mouth is would deliver far greater and more durable change than any amount of banker-bashing.

As for the future, here is that cautious optimism:

Already there are some encouraging signs of the winds of change blowing through the system, not just from the new entrants but among the UK’s oldest banks too. The new heads of the UK’s biggest banks have committed to restoring trust in their institutions and improving their social usefulness. And those words are beginning to turn into actions. Barclays and today Lloyds are seeking to change their sales-oriented culture, returning to their Quaker roots. There is the quiet, but unmistakable, sound of a leaf being turned.

If I am right and a new leaf is being turned, then Occupy will have played a key role in this fledgling financial reformation. You have put the arguments. You have helped win the debate. And policymakers, like me, will need your continuing support in delivering that radical change.

(A thank you to the FT Alphaville readers who attended the event, especially those of you who came to say hi afterwards!)

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