The financial system, which caused the crisis, is however a relatively positive story. While some banks globally remain weak, an intense program of re-capitalisation and several waves of new regulation mean the leaders of the major economies didn’t need to worry too much about systemic crisis.
" The financial system, which caused the crisis, is a relatively positive story."
Andrew Cornell, BlueNotes managing editor
But that doesn’t mean the focus on the banking system is lessening. Indeed, the post-crisis regulatory agenda is entering a newer, less prescriptive but perhaps even more significant phase.
One of the world’s higher-profile central bankers, Andreas Dombret, an executive board member of the Deutsche Bundesbank, captured this in a speech just before the G20 aptly titled “Are we done now? Reflections on the post-crisis supervisory and regulatory regime”.
“In my view, the supervisory and regulatory changes witnessed in Europe and in many other parts of the planet do not represent a response to a call for "optimal" stability, but they have set the basis for an evolutionarily fit regime. It is not just a matter of quantity, as suggested by current arguments about calibration and by newspaper articles focusing on over-regulation,” he said - a warning that while the current regulatory pipeline may be nearly empty, that’s not the end.
In fact, Dombret reminded the banking industry there would be more and more scrutiny of more intangible measures such as culture and social licence.
“Supervisors have even sharpened their focus on the culture and behaviour of bank officials,” he noted.
“There is in fact a link between the behavioural inclinations of these officials and actual solvency: all of the steps taken are geared to minimising the likelihood of deterioration and failure at the earliest possible stage.”
Just what this means can be discerned in another document released in the run up to the G20, the Financial Stability Board’s (FSB) second progress report on Measures to reduce misconduct risk.
Stressing how important ethical conduct and compliance with both the letter and spirit of applicable laws and regulations is for public trust, the FSB noted “misconduct is also relevant to prudential oversight as it can potentially affect the safety and soundness of a particular financial institution”.
Despite the political atmosphere in Australia and other incidents in Asia, this dimension of the financial system has been far more critically injured in the northern hemisphere, both during and after the financial crisis, and so the global regulatory work has orbited those events.
According the London-based Conduct Costs Project, the running total of fines for the most penalised global banks between 2011 and 2015 was £252 billion.
As Roger McCormick, managing director, CCP Research Foundation and director of the Conduct Costs Project says in his forward to the project’s latest report“not even the largest banks can now settle for regarding them merely as ‘costs of doing business.’ And the public would hardly condone such an attitude or see it as consistent with a desire to regain trust.”