Bank Financial City
Hugh Dalton, the Chancellor of the Exchequer, was noted (July 1945) to have said ''We are going to nationalise the Bank [of England]. We don't know how, but we're going to do it. Get the appropriate fellow to draw up the plans.'' The British financial services industry aka 'The City' up to then, and decades afterwards (until perhaps the Big Bang in 1986), was still run like Eton or Harrow and the Bank's governor was its headmaster. As headmaster, it was believed the governor's 'raised eyebrows' were sufficient to get an ex-Oxbridge fellow to toe the line(Atkinson, 2002).
(The Governor's eyebrows and 'old school ties' effectively ruled the City. -:) This club-style regulation continued even after the passage of the Financial Services Act 1986 and the Criminal Justice Act 1987 because many market abusers were still only threatened with 'criminal' prosecution and the Financial Services Authority (FSA) became the 'court' of first instance for market abuse cases; the idea being that those accused would heed to the threats and do the right thing or ''accept behind-closed-doors punishments just like in the old days'' (Atkinson,2002:135). While the SEC in America was carting off fraudsters to federal penitentiaries, the FSA, faced with abusive conduct in a regulated market, was imposing fines or issuing warning letters.
A decade and a bit later after the the Big Bang
The Big Bang (see Glossary) on 27 October 1986 opened the door to foreign investment banks changed the old City beyond all recognition. This meant the informal regulation the City enjoyed was becoming increasingly unworkable. After all, after the Big Bang, the alleged fraudster could be anyone – an American, an ex-public schoolboy, an African, a German, a Japanese, anyone. This situation warranted some regulatory reforms. The FSA's private court became a fully-fledged court of first instance. Maximum penalties for insider-dealing or any other 'market abuse' behaviour were now on par with those for grievous bodily harm.
Despite these reforms, the 1990s saw the greatest financial scandals to graze the City in the twentieth century. There was the BCCI scandal leaving a black hole totalling GBP 13 billion; Robert Maxwell stole GBP 450 million from company pension funds; investors all over the UK saw themselves staring at worthless pieces of paper that promised them high returns on 'rock-solid' investments that never actually existed; Lesson, a junior trader at Barings, exposed his employers to GBP 800 million of losses; Hamanaka, not to be outdone by Leeson, costed his employers $2 billion in his attempts to corner the copper market (Atkinson, 2002; Davidson, 2006).
These were cases of outright theft or rogue trading. There were very few convictions; Maxwell downed before he could face his accusers; and only a few implicated in some scandals felt honour-bound to resign their positions. To remedy the situation, the Labour government (in power from 1997) rushed through a series of radical reforms and in November 2001 the Financial Services and Markets Act (FiSMA) came to live and it looked like all regulatory powers were vested in the FSA.
The FiSMA and the current regime
The FiSMA did not work very well in practice because (aggrieved) firms could protest that FSA's actions were ultra vires and take it to court. (Note that the FSA can only police firms who were FSA members.) There was also confusion as to who actually did what during the FiSMA era. Minor ''paperwork offences'' (Atkinson,2002:144) resulting from sloppiness rather than ill-intent were dealt with directly by the FSA/UKLA; product mis-selling, unauthorised business and confidence-trick activities were the remit of FSA, Office of Fair Trading or Department of Trade and Industry; catchall 'market abuse' offences were covered by the FSA (civil jurisdiction) and/or the Serious Fraud Office, Scotland Yard, City Police fraud squads and a host of other regional and county forces.
On paper, the FiSMA looked fine; in practice, there was frequent frictions amongst the various agencies and market wrongdoers were the ones benefiting from this confusion and enforcement agency squabbles.
The FSA seems to emphasize less its quasi-policing function and focuses, I think, too much on its management consultancy aspect. This is perhaps also a fault of Parliament in that the view seems to be that the FSA's main duty is to guard London's competitive position as a leading world's financial centre. The City can look after its competitive position and the FSA's proper business should be to look after market participants.
To use Levy and Post's football analogy(2005), a referee who focuses too much on a league's position in the world and less on enforcing the rules of the game is bound to have some problems. As Levy and Post note ''financial stability is a collective good'' (p, 123) and market participants' confidence in a market go hand in hand with financial stability.
The current FSA principle-based regime is good in theory but when compared to a rule-based regime it is very deficient (Davidson,2006). Principles ''enable the FSA to present a case more easily against firms than excessive reliance on rules, in which clever lawyers may look for loopholes'' (Davidson, 2006:168). I agree but all other regulatory bodies (SEC, EU directives) are rule-based and as co-operation is paramount in an increasingly global market, perhaps it is time to reconsider the principle-based regime.
The Big Bang and the regulations that came with it were meant to widen share ownership. It is perhaps too early to say if this revolution was a success. Foreign ownership in the UK has risen from under 13% in the late Eighties to 40% at the end of 2006; over the same period, the proportion of UK shares owned by individuals has fallen from just over 20% to under 13% (The Observer, 2007:29). UK citizens, it seems, still only trust large mortgages and not exotic share portfolios.
Liquidity Regulation and Moral Hazard
Any fractional reserve banking system depends on its ability to maintain confidence and convertibility. This basic principle is eroded if risks (in particularly systemic risk) are not properly mitigated (Levy and Post, 2005). Let's consider the cash ratio. It is clear that the smaller the cash ratio, the greater the size of the credit multiplier and the greater the volume of bank deposits created on a given cash base, and vice versa. In most countries, the commercial banks are required by law to maintain a minimum cash ratio, although no maximum is established.
For example, the minimum cash ratio in the US is fixed by the Federal Reserve and has legal force. In Britain there is no legally determined minimum, but by long convention the commercial banks work to a minimum cash ratio of eight per cent. Note that these differences did not stop runs on banks in both countries: Bear Stearns in the US and Northern Rock in Britain.
The manner in which both runs were handled was very different. In the US, the Federal Reserve – avoiding a disorderly closure of Stearns - simply facilitated the its purchase by JPMorgan Chase, while in Britain, the old problem of who should do what resurfaced and dragged on for a while and the Rock was eventually nationalised.
As a Northern Rock shareholder I am still waiting a letter from the government about my shareholding and I don't think it'll come through anytime soon. As a taxpayer, I have effectively been hit twice and I therefore agree with Persaud(2008) that the current model which celebrates ''...expropriation of gains by bankers and socialization of costs by taxpayers'' isn't working and is a dangerous one! The vexing thing about the Rock debacle is that its 'risky' business plan was known to the Bank of England and the FSA. Persaud(2008) seems to be advocating only a tweaking of the risk model.
I disagree here. The risk model also has many limitations. I note that Equitable Life, one of the world's oldsest assurance companies, became insolvent because of miscalculations regarding 'guaranteed' payouts on packaged products which triggered a legal battle after which investors starting withdrawing their money and ignoring steep penalty clauses. On the FSA's risk radar, Equitable Life was rated very low risk, if it appeared at all! My point is market participants should only be made aware of the risks they are running dealing with banks or other market participants, no bailouts whatsoever.
Northern Rock should have been allowed to hit the fan. Many businesses do, why not financial institutions? Even my beloved Birmingham City FC would not be playing top flight football next season. Am I bitter, yes of course but I won't support any endeavour which would allow club chairmen to take extravagant risks. I support only two government interventions: (i) the assurance that the rules of the game are being enforced and market participants are following the rules – nothing more; and (ii) a free programme to educate investors.
I next look at additional changes I'll make.
Jury or no jury in 'complicated' white-collar cases?
This is an issue that has been raging on the UK political scene for a while. My gut feeling is that I'll go with a jury in all situations but then some cases could take years. So I am going to sit on the fence on this decision and say that a judge given the facts of the case should decide whether or not a jury is necessary.
Rewarding informants and using wiretaps?
Rewarding informants carry a certain amount of risk: neighbours spying on neighbours; work colleagues spying on work colleagues etc is never a good situation for any society to be in. History tells us that this quickly leads to an unhealthy society. So I won't advocate rewarding informants; instead I'll support the creation of compliance officers (see below).
De facto wiretapping definitely out because it would be opened to abuse. But wiretaps authorised by a judge, yes.
How about anonymous witnesses?
This is another one I'll leave to the judge to decide on a case by case basis. I won't support a blanket use of anonymous witnesses because this leaves too wide a window for overzealous law enforcers to abuse.
Market compliance officer at every institution?
This is an idea borrowed from Health and Safety. Why is every financial institution not forced to have one?
What to do with the conduct of business rules?
The Markets in Financial Instruments Directive (MiFID) came into force across the EU in November 2007. It has this one odd rule: if for example a UK incorporated firm setup shop in Germany and then does cross-border business, this will be subject to UK conduct of business rules. How is this business supervised? At the moment there is no simple answer.
Atkinson, D. (2002) Complete Guide to the Financial Markets (London: Business Books, Random House Group Ltd)
Davidson, A. (2006) How the City Really Works (London: Kogan Page Limited, 2006)
Persaud, A. (2008) 'The inappropriateness of financial regulation' [online] Available from: https://elearning.uol.ohecampus.com/webapps/portal/frameset.jsp?tab=courses&url=/bin/common/course.pl?course_id=_23557_1
(Accessed: 3 July 2008)
The Observer(2007), The Observer Book of Money (Observer Books 2007)
休·道尔顿指出，财政大臣， （ 1945年7月）曾说过：“我们要国有化银行[英国] 。我们不知道，但我们要做到这一点。获取适当的老乡制定计划。英国金融服务业又名'市'了，几十年之后（可能直到1986年大爆炸） ，仍然像伊顿公学，哈罗运行和央行行长是它的校长。作为校长，有人认为，州长提出的眉毛足以让听话的（阿特金森，2002年）的前牛津，剑桥的研究员。
（总督的眉毛和老同学的关系“有效统治的城市 - :)这个俱乐部式的调控继续，即使通过后的”金融服务法“ 1986年刑事司法法1987 ，因为许多滥用市场仍然威胁刑事起诉和金融服务管理局（ FSA ）成为“法院”市场滥用案件一审的想法是，将听取那些被指控的威胁和做正确的事或“接受落后封闭门处罚就像在旧天'' （阿特金森， 2002:135 ） 。虽然美国证交会卡丁车骗子联邦监狱， FSA ，面临着在一个规范的市场滥用行为，处以罚款或发出警告信。
宇宙大爆炸（见名词解释）于1986年10月27日开业，外资银行的大门，改变了老城区面目全非。这意味着城市享有的非正式调控越来越行不通。毕竟，在大爆炸后，被指控的欺诈者可能是任何人 - 前公众的男生，非洲，德国，日本，任何一个美国人， 。这种情况需要一些监管改革。 FSA的私人法院，成为一个不折不扣的一审法院。内幕交易或任何其他市场滥用行为的最高刑罚看齐，那些对他人身体加以严重伤害。
尽管这些改革，上世纪90年代看到吃草城市在二十世纪最大的金融丑闻。有BCCI丑闻留下一个黑洞，共计13十亿英镑，罗伯特·麦克斯韦偷走了4.5亿英镑，公司养老基金，英国各地的投资者看到自己盯着毫无价值的纸片，答应他们“坚若磐石”的投资回报高，从来没有实际存在;课，在霸菱一个初级交易员，暴露了他的雇主英镑800万的亏损;滨，不至被不甘示弱利森，他的雇主$ 2十亿在他试图垄断铜市场（ 2002年，阿特金森费用;戴维森，2006年） 。
这是赤裸裸的盗窃案件或流氓交易。有极少数的信念; ，麦克斯韦被击落之前，他可能会面临指控他的人，只有少数一些丑闻有牵连感到荣幸势必要辞职自己的立场。为了纠正这种情况，工党政府通过了一系列大刀阔斧的改革，并于2001年11月（从1997年执政）赶到，金融服务和市场法案“ （FISMA）住进来的，它看上去像所有的监管权力归属在FSA 。
FISMA并不能很好地工作在实践中，因为（委屈）公司可以抗议FSA的行为属于越权行为，并把它告上法庭。 （注FSA只能监督公司谁是FSA的成员。 ）也有混乱，究竟是谁做了什么，在FISMA时代。未成年人的“不良意图，而不是草率的文书罪行” （阿特金森， 2002:144 ） FSA / UKLA直接处理产品的不当销售，擅自经营和信心帽子戏法活动FSA的职权范围，公平贸易或贸易和工业部的办公室，包罗万象的“市场滥用”罪行涵盖由英国金融服务管理局（民事司法管辖权）和/或严重欺诈办公室，苏格兰场，城市警察欺诈小队和一个主机的其他地区和县部队。
要使用利维和邮政足球比喻（2005） ，裁判过于集中的联赛在世界上的地位和执行的游戏规则，势必有一些问题。由于利维和邮政票据“金融的稳定是一个集体的好” （ P， 123 ） ，在市场齐头并进手与金融稳定和市场参与者的信心。
目前FSA原则为基础的政权是在理论上不错，但相比一个以规则为基础的制度，它是非常缺乏（戴维森，2006年） 。原则“启用FSA的情况下更容易呈现出过度依赖规则，聪明的律师可能会寻找漏洞对企业比'' （戴维森， 2006:168 ） 。我同意，但所有其他监管机构（ SEC欧盟指令） ，以规则为基础的合作在日益全球化的市场中是最重要的，也许是时候重新考虑的原则为基础的政权。
大爆炸和法规来与它的意思，以扩大市场份额的所有权。这也许是言之尚早，如果这场革命是成功的。在2006年年底在英国的外资持股比例已经上升至13％以下，在20世纪80年代后期至40％ ，在同一时期，英国个人所拥有的股份的比例刚刚超过20 ％ ，已回落至13％以下（观察员， 2007:29 ） 。英国公民，现在看来，仍然只相信大抵押贷款和没有异国情调的份额组合。
任何部分准备金银行制度取决于其是否有能力保持信心和兑换。这个基本原则的风险（尤其是系统性风险）被侵蚀，如果没有正确的减轻（征费及邮报“ ， 2005年） 。让我们考虑现金比率。很显然，现金比率更小，更大的尺寸的信用乘数和在一个给定的现金的基础上创建的银行存款，反之亦然的体积就越大。在多数国家，法律规定商业银行维持最低现金比例，虽然没有最大。
其中既有运行处理的方式是非常不同的。在美国，美联储 - 避免无序贝尔斯登倒闭 - 只是促进其购买摩根大通，而在英国，谁的老问题，应该做的是什么复出，拖了一段时间，摇滚最终国有化。
由于诺森罗克股东，我仍然在等待政府的一封信我的股权，我不认为它会很快通过。作为纳税人，我已经有效地被击中两次，因此，我同意与佩尔绍德（2008年） ，目前模型庆祝“征用的收益由银行家和社会成本由纳税人”不工作，是一个危险的！摇滚崩溃伤脑筋的事情是， “风险”的商业计划被称为英国央行和FSA 。佩尔绍德（2008）似乎只有一个崇尚调整风险模型。
北岩银行（Northern Rock）应该被允许打风扇。很多企业做的，为什么不是金融机构？即使是我心爱的伯明翰城不会打陀螺飞行足球下个赛季。我是苦的，是的，当然，但我不会支持任何努力，这将允许俱乐部主席奢侈的风险。我支持政府干预只有两个： （i）本保证正在执行的游戏规则和市场参与者遵守规则 - 仅此而已;及（ii）投资者教育的一个免费的程序。
阿特金森， D. （2002）金融市场的完全指南（伦敦：商业书籍，兰登书屋集团有限公司）
戴维森， A. （2006）如何真正起作用的城市（伦敦：高根有限公司， 2006页）
佩尔绍德， A. （2008） “不恰当的金融监管[在线] ：
“观察家报（ 2007年），观察书的钱（观察员书籍2007 ）