It takes special figure to draw out the big names in business and finance to a lecture theatre at Cass Business School on a humid London evening. While thousands of City workers were running around the streets in the Great City Race helping raise funds for “Seeing is Believing”, Paul Volcker was running rings round the financial community in analysing its ills.
Volcker, a towering man, figuratively and literally, laid bare the inadequacies of where we are post Lehman in a quiet understated manner that only emphasised the clarity of his insights.
It is a mark of the impact Volcker has had on finance globally that he was listened to by luminaries including Lord (Adair) Turner of the FSA, studiously taking notes in the back row) , Lord (John) McFall previously chairman of the Treasury Committee, Donald Brydon, Royal Mail chairman and Sir Brian Bender, Chairman of the London Metal Exchange.
‘Seeing is believing’ might also have been the title of his lecture (wait for the speech to go up here-
http://bunhill.city.ac.uk/media/events.nsf/(httpAllEvents)/4096EEFC3CEB951D80257873004C5150?OpenDocument) and Volcker does not like much of what he sees.
There are three areas which cause him concern. He approves of the latest moves to improve banks’ capital strength through Basel III but is troubled by the loss of momentum in reform after the 2008 crash.
“It has slowed to the point of ineffectiveness”. He puts resistance down to powerful lobbying and is concerned by the over concentration of financial muscle in the US aside from elsewhere in the world. There is too much of a feeling that “ we must get back to ‘business as usual’ ”.
Volcker want to see limits to the amount of leverage that can be applied by hedge finds and others. He has no problem with risk taking as long as those who take them bear the losses.
The second area is change in structures, management and accounting standards.
There has been some good progress with consistency in accounting with the US being laggards – some 100 countries have adopted new rules that should simplify understanding, which is vital in a globalised world.
Chancellor George Osborne and Sir John Vickers, leading the Independent Banking Commission, will be dismayed to learn that Volcker is unconvinced by the idea of ring fencing retail banks in the UK. Basically, if you are going to ring fence surely they should be self-standing – completely separate from the casino banking side of the business ? Otherwise there are thousands of practical questions about how they operate that simply haven’t been addressed.
I sensed sadness as well as anger and frustration in the third area of his analysis. He is against proprietary trading and the ridiculous levels of pay and reward against short-term goals.
He points out that things such as insider trading are still rife. He laments the lack of morality behind current business. He condemns the lack of leadership being shown by too many finance executives.
Volcker ended by a plea for business schools to move beyond teaching the nuts and bolts of financial engineering but leaving out the wider community dimension. This was plea that Cass could answer positively through its work on ethical aspect of business.
The 2011 Mais lecture was a riveting occasion and a timely reminder to the regulators and business – the work of international repair is far from complete and much of it fails to convince. Paul Volcker stressed just how complicated life had become since he did his postgraduate work in the LSE in 1951. His gift is to strip away that complex and present us with some simple truths.
When will we know if the regulators have been listening? Well, I imagine that the answer will be when we can see the bankers change behaviours. As I said earlier, the theme of the evening could have been “seeing is believing”.
Economist Paul Volcker is perhaps best known for helping to end the country’s stagflation crisis during his time as chairman of the Federal Reserve under Presidents Jimmy Carter and Ronald Reagan.