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Two simple steps to transform the culture of banking and to forestall the next outrage

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It’s time to privatise commercial risk in banking and insist on prudent accounts. Government should: Eliminate moral hazard from the financial system by implementing this measure to make bank directors strictly liable without limit and to treat as capital both directors’ personal bonds and, for five years, the bonus pool. Introduce prudent bank accounting so banks can’t game the rules using derivatives to manufacture illusory profits from unrealised cash flows. The banking system isn’t capitalist It’s not capitalism when private individuals […]

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In the House today: Financial Services and Prudential Requirements

This afternoon an EU document relating to Financial Services and Prudential Requirements was placed before the House of Commons. It was not debated: debate took place in Committee last week. I attended, though I was not formally assigned to the Committee. The EU’s proposals amount to further European Union encroachment and unnecessary regulation: the document, rather than teaching granny to suck eggs, teaches bankers to make loans. It is fundamentally misguided. The EU’s preoccupation with attempting to regulate away the […]

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Speech on the Financial Institutions (Reform) Bill

I was delighted today that my ten-minute rule Bill was introduced without opposition. This late in the Parliament, the Bill itself is extremely unlikely to make further progress but I was glad to put the following on the record (these are my notes – Hansard is here: Mr Speaker, I beg to move that leave be given to bring in a Bill to enforce strict liability on directors of financial institutions; to require directors of financial institutions to post personal […]

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Financial Institutions (Reform) Bill – Other measures

In previous articles, I set out why it’s necessary to address risk-taking incentives in banks and how losses would be covered from the bonus pool and director’s personal bonds before hitting equity. This article sets out other necessary provisions. 5. Accounting standards 5.1 For the purposes of the Bill, all relevant figures (measures of profit, loss, capital, bonuses, personal bonds posted, etc.) would be obtained using parallel prudent accounting rules i.e. UK GAAP under Companies Act legislation. This was proposed in […]

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Financial Institutions (Reform) Bill – Use of personal bonds and bonus pool to make good bank losses

Yesterday, I began to set out how my proposed Financial Institutions (Reform) Bill would meet the need for a vibrant, reliable and robust banking system by adjusting bank directors’ and employees’ exposure to commercial risk. That article described changes to bank directors’ liability and the treatment of bonuses. This article explains how losses would be made good and defines core capital. 3. Use of personal bonds and bonus pool to make good bank losses 3.1 Should a bank report losses […]

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Financial Institutions (Reform) Bill – Liability of bankers and treatment of bonuses

A developed society like ours needs a good means of exchange, unit of account and store of value: a good money. It also needs a vibrant, dynamic, reliable and robust means of executing payments and intermediating savings to entrepreneurs: we need a good banking system. Unfortunately, Of all the many ways of organising banking, the worst is the one we have today. And I agree with the Governor of the Bank of England. He said elsewhere in that speech, “At the […]

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The BoE’s Andrew Haldane: “The best proposals for [bank] reform are those which aim to reshape risk-taking incentives on a durable basis”

While preparing to seek permission to introduce my Financial Institutions (Reform) Bill, I discovered a recent article by the Bank of England’s Executive Director for Financial Stability, Andrew Haldane, The Doom Loop: Equity in Banking: The continuing backlash against banking, as evidenced in popular protests on Wall Street and in the City of London, is a response not just to the fact that the world is poorer, as pre-crisis riches have turned to rags, but to the way these riches were privatised, […]

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MP bids to hold directors to account for losses | News | Money Marketing

Via MP bids to hold directors to account for losses | News | Money Marketing: All-party Parliamentary group on economics, money and banking chair Steve Baker wants directors of financial institutions to be forced to take personal liability for their firms’ losses. In a private member’s bill to be debated later this month, Conservative MP Baker calls for any losses to be “made good” first by directors’ bonuses which should be held back for five years, and then by personal bonds […]

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New 10-minute rule bill: The Financial Institutions (Reform) Bill

Next wednesday, after PMQs, I’ll be seeking leave to introduce a Bill to make bank directors and the recipients of bonuses liable for bank losses, amongst other measures. Via Parliament’s future business: FINANCIAL INSTITUTIONS (REFORM) Steve Baker That leave be given to bring in a Bill to enforce strict liability on directors of financial institutions; to require directors of financial institutions to post personal bonds as additional bank capital; to require personal bonds and bonuses to be treated as additional […]

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Three flaws in the Financial Services Bill

Under the heading, Osborne looks to limit damage of ‘credit busts’, the FT gives a neat summary of the Chancellor’s plans. In particular: He said the FPC would also look out for dangerous linkages in the financial system and identify exotic new instruments that might undermine stability. It would be charged with containing credit booms as well as limiting the damage of “credit busts”. Which this morning caused me to regret that I was not given time in the Commons […]

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