03 NovBanks and Chaos. It’s life Andy, but not as you’d like it. How regulators need to help create an orderly infrastructure to enable cooperation.

Left to their own devices, banks will not create an orderly world. There is plenty of evidence of cutting corners, misleading and even criminal behaviour in recent times. In the past couple of posts, we have focussed on the Catch-22 of having to cooperate and how the banks need to do this with the right mind set.

I was intrigued to read prss coverage of a speech by the Bank of England’s Andy Haldane. (See, the WSJ, Oct 29th: BOE’s Haldane to Boldly Go Where No Central Banker Has Gone Before). Mr. Haldane is super smart and has been through a crisis or two. He suggested he would like to be like Captain Kirk in the Starship Enterprise, looking at a bank of screens feeding him live information on international capital flows. A fabulous idea.

That article, coincided with a thoughtful note from an old hand in matters OpRisk and doing things properly; Andy Aschwanden. Andy pointed out that the cooperation conundrum is a bit like traffic infrastructure. Interbank operations  and the settlement business is like a maintaining a national traffic infrastructure; motorways, train, ship and air services. Right now, the banks set their own rules and organise communities of interest for one or other service. Often with two or more roads for the same connectivity.

Lessons to be Learned:  The regulators are only loosely involved in the national infrastructure, so there are a lot of inefficiencies. Those inefficiencies make it difficult for any one bank to have a real-time view of its own flows. The BoE’s Mr. Haldane is really showing some wishful thinking to have a collective real-time view of the parts globally, when the banks themselves struggle to have a view themselves.

I would politely suggest that more central direction is needed to help the banks help themselves, which will in turn help the regulators obtain that live view. As an Englishman, or even a Swiss, one hates to admit it, but perhaps some good old French dirigisme is needed.

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