So the world’s biggest financial institutions have finally accepted responsibility for the global financial crisis. Take that with a pinch of salt.
Words are easy; actions are what matter. The Institute of International Finance, which represents over 375 of the world’s largest financial institutions, has acknowledged in a new report that the industry is guilty of serious failures in its business practices, ranging from skewed incentive structures and weak management of risk. The institute acknowledged “major points of weaknesses in business practices” including bankers’ pay and the management of risk in its interim report on the causes and impact of the credit crunch.
It now hopes to head off the regulatory backlash that it knows will otherwise soon be heading the industry’s way. A new code of conduct is meant to correct these failings, complete with sensible-sounding reforms for deferred bonuses and more robust credit ratings. The rest of the world waits with bated breath. We will believe it when we see it.
While the banks publicly accepted much of the blame for the crisis, they said it would be wrong for the authorities to impose heavy regulation on the industry. The Institute of International Finance, instead, proposed tougher voluntary standards. The financial industry’s mea culpa—and promises of future good behaviour—would carry more credibility if the banks had shown any evidence of contrition during this crisis. But this has been lacking. What we have seen instead is the world’s biggest banks demanding—and receiving—ever greater state bailouts even as they continue to award themselves record bonuses and shower their shareholders with dividends.
Indeed, the very day that the Bank of England acceded to the latest well-orchestrated campaign by UK banks for greater assistance, Barclays Plc was announcing that Barclay Capital president Bob Diamond, directly responsible for massive writedowns, had trousered £21 million (Rs166 crore) for his efforts last year. Ultimately, the severity of any regulatory backlash is likely to be determined in the court of public opinion. So far, the banks have put up a pretty poor defence.