By Simon Miller
The Libor scandal has caused a “huge blow to the reputation of the banking industry” according to the chairman of the Financial Services Authority Adair Turner.
Speaking at the regulators' annual public meeting, Turner said that the “cynical greed of traders” asking their colleagues to falsify their Libor positions so they could make bigger profits had “justifiably shocked and angered people in particular when we are facing hard economic times provoked by the financial crisis.
“But sadly it is clear that the behaviour evidenced in the Libor case was not, in the years before the crisis, confined to this specific area of financial activity,” he added. “Documents such as the US government’s Financial Crisis Inquiry Report and the Senate report on Wall Street and the Financial Crisis, or indeed Michael Lewis’s insightful account of The Big Short have revealed, for instance, a cynical willingness of many traders to sell securities whose value they doubted to customers whose judgments they disparaged.”
Turner said there was a major challenge for the investment banking industry and related areas of finance on how to rededicate their business to a focus on “fundamental economic functions rather than creating new risks to bet against, and how to purge the industry of the culture of cynical entitlement which was far too prevalent before the crisis”.
Turner also accepted that the FSA had previously been focused on a "somewhat caveat emptor approach" to wholesale conduct issues.
"After all, the logic went, we’re dealing here with relationships between professional counterparties, or at least between banks and large institutional or large corporate clients, which ought to be able to make their own judgments. But as we have discussed the regulatory approach for the Financial Conduct Authority, we have found we need to consider how far that caveat emptor approach is sufficient," Turner added.
He continued: "There are no free lunches, and shoddy wholesale practice is not a victimless act, even in those cases where it is not defined as a crime. We will therefore need to think carefully how far we should shift our past approach to the supervision of wholesale conduct, and what resources and skills we need to be more effective in this area."