UNLESS you slept all Easter, you will have noticed there has just been a revolution in banking regulation. The FSA was closed down, and the Financial Conduct Authority and the Prudential Regulatory Authority opened up. The new regime – far tougher than before – is part of a programme the chancellor has said will “reset” the country’s banking system.
But it isn’t just the regulators that have changed. So have the banks. The crisis showed that banks were clearly over-leveraged. They have now dramatically increased capital levels to ensure they are more stable – core capital is up more than threefold since 2007. UK banks have implemented “living wills” to ensure that, if they do become vulnerable, they can be stabilised. And if they collapse, they can be resolved with minimum damage and without being bailed out by taxpayers. Legislation for such recovery and resolution plans is being introduced at a European level. The aim is to end “too big to fail”, and to ensure that taxpayers will never have to bail out banks again.
There was also chorus demanding that heads roll, but few are aware of just how many have. And it’s not just the high profile examples, but true across the sector: since the crisis began 90 per cent of bank board members have gone. This is almost a complete regime change, unprecedented in any other industry.
People were also outraged about pay, which even leaders of the industry have said was “grotesque”. Too many were given massive rewards for taking excessive short-term risks with other people’s money. But pay has been transformed – by law, most of the bonuses must be paid in shares and deferred, ensuring that bankers are only rewarded for improving long-term performance. Since 2007, the total bonus pool has dropped by 55 per cent, with immediate cash bonuses down 77 per cent – a fraction of what they were. Bankers are now paid less in London than in other global financial centres such as New York and Hong Kong.
In the wake of various mis-selling scandals, bank chief executives have been frank about how the industry lost sight of customers. They have re-configured their businesses to ensure they properly serve their customers’ interests. Sales bonuses are being stripped out of retail bank networks in a bid to tackle mis-selling.
There has been a complete regulatory overhaul of almost every aspect of banking, mostly emanating from Brussels. There has been little awareness of this in the UK, but banks are still implementing this tidal wave.
Banks have changed, but more is needed. In particular, as the Libor scandal showed, ethical standards in the industry need to improve. However, those with a keen interest in seeing banks change – and that is most of us – have to acknowledge the amount that has already happened, otherwise they will end up demanding change without end. Even among the critics of banks, there is a growing acceptance that we need to put banker bashing behind us. Welcoming the change of regulators and change in the banks is a good place to start.
Anthony Browne is chief executive of the British Bankers’ Association.