Banking lemmings: moral hazard or absolute bloody certainty?

The Walker Review published recently on Banking regulations seems on the face of it to be a bit of a damp squib. Check out Tom P after his initial read and his conclusion here. Will this review even if fully implemented curb our financial sector lemming like urge to throw our money over cliffs from time to time?

The other week I attended a business meeting of LAPFF (see report here on the ever so polite M&S revolt). The first guest speaker was an senior executive from a top credit rating agency. He explained (IMO) how Banks and financial institutions credit worthiness are rated primarily on the support that the central Banks will offer if they run into trouble rather than any other factor including their governance arrangements. Banking failure is relatively commonplace but because of their central importance to the national economy they are not allowed to fail. Their bonds therefore are always safe. It is only the rest of us that suffer from their disastrous actions.

Also there is also no moral hazard to act as a brake since the Banks know that the Government will always bail them out.

So there we have it. If the credit reference industry is not bothered about preventing Banking failures then so who is? The Regulators? We also had at the meeting a pretty convincing presentation that showed how the “City” considers “Regulation” as just a set of rules that you need to find ways of getting around. The financial institutions (including the publicly owned ones) are spending huge amounts of our money on “researching” the new and proposed regulatory measures with the simple aim of evading them. Business as usual then.

So unless something radically changes we are doomed to repeat this disaster again and again.

The solution - only when we have truly independent owner/stakeholder representatives elected on the boards of financial institutions will there be a check and challenge to the lemmings.

BTW – Remember the infamous film of lemmings we probably all saw as kids which appeared to show hundreds of Lemmings throwing themselves off cliffs while on pointless migrations? Despite the fact that this was a “Disney” film apparently the film production crew themselves was responsible for flying in crates of lemmings into the cliff area and throwing them over the cliff with the help of a turntable.

There is a modern day metaphor here somewhere?