“There is the quiet, but unmistakable, sound of a leaf being turned”. So said Andrew Haldane last week, the Bank of England’s youthful Executive Director for Financial Stability.
Haldane was speaking at an event hosted in central London by Occupy. The recently-formed protest group, which operates in several countries, is best known in the UK for establishing a protest camp at St Paul’s Cathedral. As such, some have looked down their nose at Haldane for making such a speech, accusing him of posturing and playing to the gallery.
Occupy, after all, is viewed by much of our financial establishment as an incoherent rag-bag, nothing but a bunch of “anti-capitalist” lay-abouts. Many of its activists certainly seem to be long on inane sloganeering and short on financial expertise. The four-month St. Paul’s camp was also judged to be illegal.
Yet when Occupy writes in its mission statement that “ordinary people are being forced to pay for a crisis they didn’t cause”, then they have my complete and utter agreement. I, too, want “regulators to be genuinely independent of the industries they regulate” and concur that, when it comes to the UK’s financial services industry, currently they are not.
While I dare say my views on fiscal austerity wouldn’t endear me to an Occupy sit-in, I share the organization’s outrage that “since 2008, hundreds of thousands of people have lost their jobs and millions have experienced pain and hardship because of reckless financial practices”. I would also largely agree with Occupy when they argue that “despite promises of reform, banks have been allowed to continue business as normal”.
Haldane’s speech caught the headlines last week, not only because of who he was addressing, but even moreso due to what he said. “Members of Occupy have been successful in their efforts to popularize the problems of the global financial system for one very simple reason,” he ventured, “because they are right”. Haldane stressed that he felt the protesters were correct “not just in a moral sense”, but “analytically” too. Occupy, he said, had “touched a nerve” by highlighting that “problems of deep and rising inequality … were and are at the heart of the global financial crisis”.
This is a time of huge upheaval at the Bank of England. Last week saw the publication of no fewer than three independent reviews urging the “Old Lady” to overhaul its internal structures and address a patchy forecasting record. Next April, the Bank becomes the main regulator for the UK banking sector, taking over from the Financial Services Authority – aka Gordon Brown’s folly. Most significantly, perhaps, in five weeks’ time, we’ll learn who will succeed Sir Mervyn King as Governor.
Haldane is, without question, one of the Bank’s rising stars. As well as his Executive Director role, he also sits on the pivotal Financial Policy Committee, which sets the tone for UK regulation. Still in his mid-40s, he isn’t seen as a serious candidate for Sir Mervyn’s job, but could well end up filling one of the prestigious Deputy Governor slots. So what was Haldane playing at, turning up at an Occupy rally and fanning the flames of discontent?
The fact is that Haldane’s Occupy speech, available on the Bank of England website, was a model of good sense. He deserves enormous credit for making it. Urging the activists away from a banker-bashing “heads-on-sticks” approach, Haldane stressed the seldom-made point that the “vast majority of the 400,000 people employed in the UK’s banking sector weren’t driven by greed and weren’t negligent”.
While not denying the importance of punishing individual “negligence and criminality”, Haldane correctly asserted that this crisis was caused by “a system with in-built incentives for self-harm: in its structure, its leverage, its governance, the level and form of its remuneration and its (lack of) competition”. Getting rid of these “self-destructive tendencies”, Haldane argued, would mean “changing the incentives and culture of finance, root and branch”.
Such words, by a serving Bank of England official, show courage, foresight and a laudable willingness not only to engage with the public, but also to conduct the very necessary task of putting senior noses out of joint in our financial services industry. This is in stark contrast to all the “leading candidates” for Sir Mervyn’s job. The banking lobby is a formidable, relentless and entirely self-serving beast, resisting meaningful reform at every turn. Haldane is almost alone among our senior regulatory officials in showing the appetite to take it on.
This Occupy address could be dismissed as a “gimmick” where it not for the fact that its contents are consistent with a string of speeches that Haldane has made, over several years now, in the aftermath of the sub-prime crisis.
To address the “too-big-to-fail” problem, he has said, regulators should consider “placing limits on bank size”, while imposing a “full separation of investment and commercial banking”. This goes much further than the Vicker’s proposals to “ring-fence” such activities within the same organization, which would keep the banking monoliths in tact. “Today’s ring-fence [can become] tomorrow’s string vest,” Haldane recently said. Rarely has a truer word been spoken.
For some time, Haldane has been warning about the dangers of quantitative easing, consistently urging members of the Bank’s rate-setting Monetary Policy Committee to face up to their political and banking sector masters by showing restraint. If the committee, when it meets this week, does decide not to extend this money-printing policy beyond its current £375bn total, Haldane deserves recognition for having been among the first at the Bank publicly to make this argument. Only now are others, seeing the writing on the wall, expressing their “long-held concerns” about QE.
In his Occupy speech, Haldane argued that we are now “in the early stages” of the financial reformation this country so desperately needs. Yet he also cited recent research by the Bank for International Settlements suggesting that, once bank assets exceed a country’s annual national income in size, they begin to act as a drag on growth. The US banking sector is around two-thirds of annual GDP. This suggests that, while Wall Street has its monoliths, America’s financial services industry is not as bloated as is often perceived.
The UK’s banking sector, though, is almost five-times the size of our yearly output. This is insane. Yet, even now, I don’t hear other candidates for Sir Mervyn’s job talking about meaningful bank break-ups. Haldane, in contrast, has been making such arguments for years. Again, he is the only senior regulatory figure expressing what is patently obvious – that current initiatives are a step in the right direction but don’t go nearly far enough.
Over at the FSA, Lord Turner is now floating the idea of “helicopter money” for our banking sector – a form of ultra-loose monetary policy that makes QE looks responsible. Yet again, as he always does, Turner is saying whatever the politicians want him to say, as long as he gets the job.
The leading internal candidate for Sir Mervyn’s job, meanwhile, while an able man, also isn’t suitable. Paul Tucker has been cultivating the UK’s banking sector bosses for years, positioning himself as the “City’s choice” for Governor. At a time when tough reforms are needed, Tucker simply hasn’t got the stomach to face down the banks.
The UK is in a desperate situation. We need top officials with vision, courage and the intellectual heft to impose the uncomfortable but necessary solutions. That’s why the government should skip a generation and give the job to Haldane.