The Banking Commission’s report is definitely to be welcomed. It sets out forcefully and cogently the problem – our banking system is perceived as broken and untrustworthy, while some in the financial community remain in denial. It makes a long series of recommendations on ways to improve financial conduct. If all of them were implemented, there is little doubt that the future of British banking would be a lot less glamorous and quite a lot less risky. If only some of them make it on to the statute book, then I think we will still have cause to be grateful. The Commission clearly wants to see changes that will have a lasting impact, and therein lies the difficulty. Some of the report’s more ambitious proposals, such as sending malfeasants to prison, have made for good headlines. Whether the politicians will feel the need to follow through with actual legislation, however, is ultimately rather more important. Andrew Freeman is director of Demos Finance.
Archbishop of Canterbury Justin Welby, who sat on the Banking Standards Commission, should perhaps have taken heed of his Catholic counterpart, the archbishop of Westminster. On the financial crash, the latter observed, “commentators point out that the financial system, while closely regulated, was lacking in clear ethical foundations. In place of virtue, we have seen an expansion of regulation. A society that is held together just by compliance to rules is inherently fragile, open to further abuses which will be met by a further expansion of regulation”. And this is what we see from the Commission. The report contains some fine analysis of ethical problems, but proposes solutions that are largely regulatory. The most important reforms will be structural ones that make banks bear the cost of their own failure, helping to rein in excesses. Attempts to promote ethics via increasing regulation, on the other hand, will continue to fail. Philip Booth is editorial director at the Institute of Economic Affairs.