George Osborne: five tips on banking reform

prem sikka 4Professor of Accountancy Prem Sikka gives visibility to the hand of power, institutions and politics, arguing that life can be lived differently and in a fulfilling way. He says: “Millions of people don’t need to suffer in a world of plenty. I always live in hope”. His five tips are summarised here:

Some six years after the banking crash, the UK taxpayer is still providing £977bn of loans and guarantees (pdf) to support the ailing banking sector. The reform process is painfully slow. The banking reform bill currently going through parliament (pdf) has grown from 35 pages to 170 pages, but still does not deal with the flaws that led to the crisis.

Public pressure for a tougher approach is growing, with figures including the Archbishop of Canterbury demanding firmer government action. The chancellor, George Osborne, should at the very least do the following five things. On their own, they won’t necessarily solve the deep-seated crisis in our financial institutions, but they would provide the direction for deeper reforms.

1. Think outside the ringfence

Introduce a statutory separation of retail banking from speculative banking and not just the weak “ringfence” he is proposing . . .

2. Hold banks responsible for losses

Withdraw limited liability from speculative banking. Merely separating the banking arms is not enough because banks use monies from savers, pension funds and insurance companies to finance their gambling habit . . .

3. Make them balance the books

Force banks to address their gross undercapitalisation. Barclays has gross assets of £1,500bn against capital of just £63bn. A decline of just 4.22% in the value of its assets could wipe out its entire capital . . . a healthy capital adequacy ratio of at least 12.5%, and higher, should be aimed for.

4. End fat-cattery

Risk capital should be built by clamping down on executive pay. No executive should receive more than 10 times the minimum wage until the required capital levels are reached . . .

5. Crack down on the auditors

Bring in a fundamental overhaul of the auditing of banks. Big accounting firms, acting as auditors of banks, are supposed to be the eyes and ears of financial regulators, but the lure of profit is too strong. Almost every ailing bank received a clean bill of health (pdf) from its auditors who received millions of pounds in auditing and consultancy fees . . . Unlike the present situation, the financial regulator should have unhindered access to all data held by the auditors.

Read the full account here:

Next, Prem Sikka and others write to protest about the relationship between the British Parliament and the City of London Corporation.



Posted on December 4, 2013, in Banking and finance, Government and tagged , , , , , , , . Bookmark the permalink. Leave a comment.

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