HeadsShouldRoll

There is a wonderful expression, American I believe, called, Passing the Buck. It means when you blame someone else for your own mistakes. We now have the results of this behavior in the banks of the world. Led by the UK they are now being re-capitalized to a huge degree and, in many places, being effectively nationalized.

The biggest banks in the UK overstretched themselves to a massive degree over the last decade in which they went on a merger and acquisition rampage and leveraged themselves hugely to do so. The same is true around the globe.

It is now apparent that there were many, even within the British banks own management structures, who simply didn’t understand some of the details of how the more sophisticated banking deals were being done, organized or paid for. It seems self evident that the same is true in most, if not all of the banks around the world.

We should not be fooled into a quick look at the banks and naively think that by simply sacking a few senior managers and executive and indulging in some ritual blood-letting we will do enough to satisfy either the blood lust of the media on behalf of the nation or do what’s necessary to stop this type of lunacy happening again.

There is someone else who it is much more pertinent to look at in this regard and that is the Financial Services Authority. It is pertinent to see how the FSA describe themselves in their own web site;

“We are an independent body that regulates the financial services industry in the UK.

We have been given a wide range of rule making, investigatory and enforcement powers in order to meet our four statutory objectives. In meeting these, we are also obliged to have regard to the Principles of Good Regulation.

We summarize our Statutory Objectives and Principles of Good Regulation in three Strategic Aims:

* Promoting efficient, orderly and fair markets;
* Helping retail consumers achieve a fair deal; and
* Improving our business capability and effectiveness”

The Financial Services Authority (FSA) is an independent organization responsible for regulating financial services in the UK.

The FSA's aim is to promote efficient, orderly and fair financial markets and help retail financial service consumers get a fair deal.

The FSA was set up by government. The government is responsible for the overall scope of the FSA’s regulatory activities and for its powers.

The FSA regulates most financial services markets, exchanges and firms. It sets the standards that they must meet and can take action against firms if they fail to meet the required standards”.

The FSA Chief Executive has now joined the general accusations being made against the banks, the speculators and the bankers themselves. But Principle 4 of the FSA's own 13 Principles for market conduct states that firms are compelled to maintain adequate financial resources, including capital and liquidity.

This is the essence of the regulator's pay policy and the club it can swing. In the FSA's view, there are many firms that have followed pay policies which were inconsistent with sound risk management – or put another way, compromised Principle 4. So the FSA should be made to look closely at their defects in a mirror.

A great deal of financial pain and chaos would have been avoided if the FSA had done their job better and had they been tougher in enforcing their rules over the last few years. Ironically they force organizations to spend time and money out of all proportion to its usefulness on minor matters and seemed to totally miss the big targets to utterly alarming effect.

Now the question is whether this regulator with a blind spot about its own inadequacies will now actually wield its collection of shiny new weapons rather than continue to pose and clout the little guys and leave the big guys to do just what they want. Right now it looks like the boys in the bad suits from the FSA are bolting the door very carefully, well after the horse has bolted.

The draft guidelines for good remuneration practice is probably now going to serve as the guide, and there's more than a fair chance that it will. The guidelines make clear that pay will be based on profits rather than revenue; performance should be assessed on a moving average, in order that a significant part of a package is deferred; and that compensation schemes will be contractually enforced and not waived or ignored to suit the occasion.

And finally, when all things are considered it is fair and appropriate that we ask who is going to carry responsibility and resign from among the politicians and FSA chiefs because they are just as responsible for the financial debacle as the bankers who have already been forced to carry the can.