Bank Financial City
Hugh Dalton, the Chancellor of the Exchequer, was noted (July 1945) to have said ''We are going to nationalise the Bank [of England]. We don't know how, but we're going to do it. Get the appropriate fellow to draw up the plans.'' The British financial services industry aka 'The City' up to then, and decades afterwards (until perhaps the Big Bang in 1986), was still run like Eton or Harrow and the Bank's governor was its headmaster. As headmaster, it was believed the governor's 'raised eyebrows' were sufficient to get an ex-Oxbridge fellow to toe the line(Atkinson, 2002).
(The Governor's eyebrows and 'old school ties' effectively ruled the City. -:) This club-style regulation continued even after the passage of the Financial Services Act 1986 and the Criminal Justice Act 1987 because many market abusers were still only threatened with 'criminal' prosecution and the Financial Services Authority (FSA) became the 'court' of first instance for market abuse cases; the idea being that those accused would heed to the threats and do the right thing or ''accept behind-closed-doors punishments just like in the old days'' (Atkinson,2002:135). While the SEC in America was carting off fraudsters to federal penitentiaries, the FSA, faced with abusive conduct in a regulated market, was imposing fines or issuing warning letters.
A decade and a bit later after the the Big Bang
The Big Bang (see Glossary) on 27 October 1986 opened the door to foreign investment banks changed the old City beyond all recognition. This meant the informal regulation the City enjoyed was becoming increasingly unworkable. After all, after the Big Bang, the alleged fraudster could be anyone – an American, an ex-public schoolboy, an African, a German, a Japanese, anyone. This situation warranted some regulatory reforms. The FSA's private court became a fully-fledged court of first instance. Maximum penalties for insider-dealing or any other 'market abuse' behaviour were now on par with those for grievous bodily harm.
Despite these reforms, the 1990s saw the greatest financial scandals to graze the City in the twentieth century. There was the BCCI scandal leaving a black hole totalling GBP 13 billion; Robert Maxwell stole GBP 450 million from company pension funds; investors all over the UK saw themselves staring at worthless pieces of paper that promised them high returns on 'rock-solid' investments that never actually existed; Lesson, a junior trader at Barings, exposed his employers to GBP 800 million of losses; Hamanaka, not to be outdone by Leeson, costed his employers $2 billion in his attempts to corner the copper market (Atkinson, 2002; Davidson, 2006).
These were cases of outright theft or rogue trading. There were very few convictions; Maxwell downed before he could face his accusers; and only a few implicated in some scandals felt honour-bound to resign their positions. To remedy the situation, the Labour government (in power from 1997) rushed through a series of radical reforms and in November 2001 the Financial Services and Markets Act (FiSMA) came to live and it looked like all regulatory powers were vested in the FSA.
The FiSMA and the current regime
The FiSMA did not work very well in practice because (aggrieved) firms could protest that FSA's actions were ultra vires and take it to court. (Note that the FSA can only police firms who were FSA members.) There was also confusion as to who actually did what during the FiSMA era. Minor ''paperwork offences'' (Atkinson,2002:144) resulting from sloppiness rather than ill-intent were dealt with directly by the FSA/UKLA; product mis-selling, unauthorised business and confidence-trick activities were the remit of FSA, Office of Fair Trading or Department of Trade and Industry; catchall 'market abuse' offences were covered by the FSA (civil jurisdiction) and/or the Serious Fraud Office, Scotland Yard, City Police fraud squads and a host of other regional and county forces.
On paper, the FiSMA looked fine; in practice, there was frequent frictions amongst the various agencies and market wrongdoers were the ones benefiting from this confusion and enforcement agency squabbles.
The FSA seems to emphasize less its quasi-policing function and focuses, I think, too much on its management consultancy aspect. This is perhaps also a fault of Parliament in that the view seems to be that the FSA's main duty is to guard London's competitive position as a leading world's financial centre. The City can look after its competitive position and the FSA's proper business should be to look after market participants.
To use Levy and Post's football analogy(2005), a referee who focuses too much on a league's position in the world and less on enforcing the rules of the game is bound to have some problems. As Levy and Post note ''financial stability is a collective good'' (p, 123) and market participants' confidence in a market go hand in hand with financial stability.
The current FSA principle-based regime is good in theory but when compared to a rule-based regime it is very deficient (Davidson,2006). Principles ''enable the FSA to present a case more easily against firms than excessive reliance on rules, in which clever lawyers may look for loopholes'' (Davidson, 2006:168). I agree but all other regulatory bodies (SEC, EU directives) are rule-based and as co-operation is paramount in an increasingly global market, perhaps it is time to reconsider the principle-based regime.
The Big Bang and the regulations that came with it were meant to widen share ownership. It is perhaps too early to say if this revolution was a success. Foreign ownership in the UK has risen from under 13% in the late Eighties to 40% at the end of 2006; over the same period, the proportion of UK shares owned by individuals has fallen from just over 20% to under 13% (The Observer, 2007:29). UK citizens, it seems, still only trust large mortgages and not exotic share portfolios.
Liquidity Regulation and Moral Hazard
Any fractional reserve banking system depends on its ability to maintain confidence and convertibility. This basic principle is eroded if risks (in particularly systemic risk) are not properly mitigated (Levy and Post, 2005). Let's consider the cash ratio. It is clear that the smaller the cash ratio, the greater the size of the credit multiplier and the greater the volume of bank deposits created on a given cash base, and vice versa. In most countries, the commercial banks are required by law to maintain a minimum cash ratio, although no maximum is established.
For example, the minimum cash ratio in the US is fixed by the Federal Reserve and has legal force. In Britain there is no legally determined minimum, but by long convention the commercial banks work to a minimum cash ratio of eight per cent. Note that these differences did not stop runs on banks in both countries: Bear Stearns in the US and Northern Rock in Britain.
The manner in which both runs were handled was very different. In the US, the Federal Reserve – avoiding a disorderly closure of Stearns - simply facilitated the its purchase by JPMorgan Chase, while in Britain, the old problem of who should do what resurfaced and dragged on for a while and the Rock was eventually nationalised.
As a Northern Rock shareholder I am still waiting a letter from the government about my shareholding and I don't think it'll come through anytime soon. As a taxpayer, I have effectively been hit twice and I therefore agree with Persaud(2008) that the current model which celebrates ''...expropriation of gains by bankers and socialization of costs by taxpayers'' isn't working and is a dangerous one! The vexing thing about the Rock debacle is that its 'risky' business plan was known to the Bank of England and the FSA. Persaud(2008) seems to be advocating only a tweaking of the risk model.
I disagree here. The risk model also has many limitations. I note that Equitable Life, one of the world's oldsest assurance companies, became insolvent because of miscalculations regarding 'guaranteed' payouts on packaged products which triggered a legal battle after which investors starting withdrawing their money and ignoring steep penalty clauses. On the FSA's risk radar, Equitable Life was rated very low risk, if it appeared at all! My point is market participants should only be made aware of the risks they are running dealing with banks or other market participants, no bailouts whatsoever.
Northern Rock should have been allowed to hit the fan. Many businesses do, why not financial institutions? Even my beloved Birmingham City FC would not be playing top flight football next season. Am I bitter, yes of course but I won't support any endeavour which would allow club chairmen to take extravagant risks. I support only two government interventions: (i) the assurance that the rules of the game are being enforced and market participants are following the rules – nothing more; and (ii) a free programme to educate investors.
I next look at additional changes I'll make.
Jury or no jury in 'complicated' white-collar cases?
This is an issue that has been raging on the UK political scene for a while. My gut feeling is that I'll go with a jury in all situations but then some cases could take years. So I am going to sit on the fence on this decision and say that a judge given the facts of the case should decide whether or not a jury is necessary.
Rewarding informants and using wiretaps?
Rewarding informants carry a certain amount of risk: neighbours spying on neighbours; work colleagues spying on work colleagues etc is never a good situation for any society to be in. History tells us that this quickly leads to an unhealthy society. So I won't advocate rewarding informants; instead I'll support the creation of compliance officers (see below).
De facto wiretapping definitely out because it would be opened to abuse. But wiretaps authorised by a judge, yes.
How about anonymous witnesses?
This is another one I'll leave to the judge to decide on a case by case basis. I won't support a blanket use of anonymous witnesses because this leaves too wide a window for overzealous law enforcers to abuse.
Market compliance officer at every institution?
This is an idea borrowed from Health and Safety. Why is every financial institution not forced to have one?
What to do with the conduct of business rules?
The Markets in Financial Instruments Directive (MiFID) came into force across the EU in November 2007. It has this one odd rule: if for example a UK incorporated firm setup shop in Germany and then does cross-border business, this will be subject to UK conduct of business rules. How is this business supervised? At the moment there is no simple answer.
Atkinson, D. (2002) Complete Guide to the Financial Markets (London: Business Books, Random House Group Ltd)
Davidson, A. (2006) How the City Really Works (London: Kogan Page Limited, 2006)
Persaud, A. (2008) 'The inappropriateness of financial regulation' [online] Available from: https://elearning.uol.ohecampus.com/webapps/portal/frameset.jsp?tab=courses&url=/bin/common/course.pl?course_id=_23557_1
(Accessed: 3 July 2008)
The Observer(2007), The Observer Book of Money (Observer Books 2007)
休·道爾頓指出，財政大臣， （ 1945年7月）曾說過：“我們要國有化銀行[英國] 。我們不知道，但我們要做到這一點。獲取適當的老鄉制定計劃。英國金融服務業又名'市'了，幾十年之后（可能直到1986年大爆炸） ，仍然像伊頓公學，哈羅運行和央行行長是它的校長。作為校長，有人認為，州長提出的眉毛足以讓聽話的（阿特金森，2002年）的前牛津，劍橋的研究員。
（總督的眉毛和老同學的關系“有效統治的城市 - :)這個俱樂部式的調控繼續，即使通過后的”金融服務法“ 1986年刑事司法法1987 ，因為許多濫用市場仍然威脅刑事起訴和金融服務管理局（ FSA ）成為“法院”市場濫用案件一審的想法是，將聽取那些被指控的威脅和做正確的事或“接受落后封閉門處罰就像在舊天'' （阿特金森， 2002:135 ） 。雖然美國證交會卡丁車騙子聯邦監獄， FSA ，面臨著在一個規范的市場濫用行為，處以罰款或發出警告信。
宇宙大爆炸（見名詞解釋）于1986年10月27日開業，外資銀行的大門，改變了老城區面目全非。這意味著城市享有的非正式調控越來越行不通。畢竟，在大爆炸后，被指控的欺詐者可能是任何人 - 前公眾的男生，非洲，德國，日本，任何一個美國人， 。這種情況需要一些監管改革。 FSA的私人法院，成為一個不折不扣的一審法院。內幕交易或任何其他市場濫用行為的最高刑罰看齊，那些對他人身體加以嚴重傷害。
盡管這些改革，上世紀90年代看到吃草城市在二十世紀最大的金融丑聞。有BCCI丑聞留下一個黑洞，共計13十億英鎊，羅伯特·麥克斯韋偷走了4.5億英鎊，公司養老基金，英國各地的投資者看到自己盯著毫無價值的紙片，答應他們“堅若磐石”的投資回報高，從來沒有實際存在;課，在霸菱一個初級交易員，暴露了他的雇主英鎊800萬的虧損;濱，不至被不甘示弱利森，他的雇主$ 2十億在他試圖壟斷銅市場（ 2002年，阿特金森費用;戴維森，2006年） 。
這是赤裸裸的盜竊案件或流氓交易。有極少數的信念; ，麥克斯韋被擊落之前，他可能會面臨指控他的人，只有少數一些丑聞有牽連感到榮幸勢必要辭職自己的立場。為了糾正這種情況，工黨政府通過了一系列大刀闊斧的改革，并于2001年11月（從1997年執政）趕到，金融服務和市場法案“ （FISMA）住進來的，它看上去像所有的監管權力歸屬在FSA 。
FISMA并不能很好地工作在實踐中，因為（委屈）公司可以抗議FSA的行為屬于越權行為，并把它告上法庭。 （注FSA只能監督公司誰是FSA的成員。 ）也有混亂，究竟是誰做了什么，在FISMA時代。未成年人的“不良意圖，而不是草率的文書罪行” （阿特金森， 2002:144 ） FSA / UKLA直接處理產品的不當銷售，擅自經營和信心帽子戲法活動FSA的職權范圍，公平貿易或貿易和工業部的辦公室，包羅萬象的“市場濫用”罪行涵蓋由英國金融服務管理局（民事司法管轄權）和/或嚴重欺詐辦公室，蘇格蘭場，城市警察欺詐小隊和一個主機的其他地區和縣部隊。
要使用利維和郵政足球比喻（2005） ，裁判過于集中的聯賽在世界上的地位和執行的游戲規則，勢必有一些問題。由于利維和郵政票據“金融的穩定是一個集體的好” （ P， 123 ） ，在市場齊頭并進手與金融穩定和市場參與者的信心。
目前FSA原則為基礎的政權是在理論上不錯，但相比一個以規則為基礎的制度，它是非常缺乏（戴維森，2006年） 。原則“啟用FSA的情況下更容易呈現出過度依賴規則，聰明的律師可能會尋找漏洞對企業比'' （戴維森， 2006:168 ） 。我同意，但所有其他監管機構（ SEC歐盟指令） ，以規則為基礎的合作在日益全球化的市場中是最重要的，也許是時候重新考慮的原則為基礎的政權。
大爆炸和法規來與它的意思，以擴大市場份額的所有權。這也許是言之尚早，如果這場革命是成功的。在2006年年底在英國的外資持股比例已經上升至13％以下，在20世紀80年代后期至40％ ，在同一時期，英國個人所擁有的股份的比例剛剛超過20 ％ ，已回落至13％以下（觀察員， 2007:29 ） 。英國公民，現在看來，仍然只相信大抵押貸款和沒有異國情調的份額組合。
任何部分準備金銀行制度取決于其是否有能力保持信心和兌換。這個基本原則的風險（尤其是系統性風險）被侵蝕，如果沒有正確的減輕（征費及郵報“ ， 2005年） 。讓我們考慮現金比率。很顯然，現金比率更小，更大的尺寸的信用乘數和在一個給定的現金的基礎上創建的銀行存款，反之亦然的體積就越大。在多數國家，法律規定商業銀行維持最低現金比例，雖然沒有最大。
其中既有運行處理的方式是非常不同的。在美國，美聯儲 - 避免無序貝爾斯登倒閉 - 只是促進其購買摩根大通，而在英國，誰的老問題，應該做的是什么復出，拖了一段時間，搖滾最終國有化。
由于諾森羅克股東，我仍然在等待政府的一封信我的股權，我不認為它會很快通過。作為納稅人，我已經有效地被擊中兩次，因此，我同意與佩爾紹德（2008年） ，目前模型慶祝“征用的收益由銀行家和社會成本由納稅人”不工作，是一個危險的！搖滾崩潰傷腦筋的事情是， “風險”的商業計劃被稱為英國央行和FSA 。佩爾紹德（2008）似乎只有一個崇尚調整風險模型。
北巖銀行（Northern Rock）應該被允許打風扇。很多企業做的，為什么不是金融機構？即使是我心愛的伯明翰城不會打陀螺飛行足球下個賽季。我是苦的，是的，當然，但我不會支持任何努力，這將允許俱樂部主席奢侈的風險。我支持政府干預只有兩個： （i）本保證正在執行的游戲規則和市場參與者遵守規則 - 僅此而已;及（ii）投資者教育的一個免費的程序。
阿特金森， D. （2002）金融市場的完全指南（倫敦：商業書籍，蘭登書屋集團有限公司）
戴維森， A. （2006）如何真正起作用的城市（倫敦：高根有限公司， 2006頁）
佩爾紹德， A. （2008） “不恰當的金融監管[在線] ：
“觀察家報（ 2007年），觀察書的錢（觀察員書籍2007 ）