So it is natural and indeed understandable that bankers harbour grievances and misgivings towards bank regulation and supervisors. And this is why the topic I am going to talk about is a very attractive theme to them. They would like to hear from a supervisor speaking on a subject that they can normally only discuss privately amongst themselves. 4. First of all, let me give you the good news! As I see it, there are two ways to get rid of bank supervisors, one fast track and the other a slow track. Let me start with the fast track! 5. If you can find a clock or time machine that would allow you to dial back time to 100 years or so ago, then you would find yourself in a happy world where there was little or even no banking supervision. Contrary to common belief, banking supervision as a profession or industry (or, as some bankers would no doubt have it, a “black art”) does not have a very long history. Until the Roosevelt New Deal era 1933 Banking Act in the USA, no depositor in an American bank could have been assured of clear supervisory oversight, following a century of uncertainty about state and national authority over banks and the issue of bank notes. In the UK, the first statutorily-backed regulatory regime was put in place only in 1979. Prior to that time, the Bank of England had exerted only informal authority, including through the venerable “Governor’s eyebrow”.
In summary, the slow track solution to get rid of bank supervisors involves quite a number of fundamental changes to counter those trends that arise from what is now practiced in modern day banking. The measures required are not new, and are intended to restore a strong alignment of interest between bankers and their customers. This would entail, as I have explained, the creation or re-creation of a balanced and fair compensation system for bank owners and senior managers in which good performance is rewarded and bad risk management or conduct is punished. However, the crux of the matter is that the performance has to be long term and not short term. To reduce the risks of senior managers and bank staff taking short-sighted decisions, longer term or even life-time employment should be encouraged and not discouraged. 11. I know what you are going to say! You will say that I am asking for something that is very hard, if not impossible, to accomplish. The world has changed so much that it is unrealistic to go back to the “good old days”. For example, most banks are limited companies listed on stock exchanges and it is just not practical for them to return to a partnership structure. Moreover, banks employ hundreds of thousands of staff at different levels and it is impracticable to insist on life employment for all of them. Nor will employees in these modern times prefer to stick with one company for the whole of their working lives.