Sunday, 24 June 2012

Banks v. Credit Ratings Agencies

In the aftermath of Moody's industry wide down downgrade of banks, I note that the worst affected have come out fighting seeking some kind of pat on the back for the repair work done in the last few years ( Moody's facing backlash as markets shrug off decision to downgrade world's biggest lenders).

I also note the criticism of the role of credit rating agencies in the making of the credit crunch.

And, whilst I whole heartedly agree with the part they played, lets never forget that the Banking industry, in the UK at least, is largely self regulated or lightly touched.

Repair work may have been done but it has been funded by the taxpayer who continues to be penalised with regards to ongoing MPC policy on interest rates, quantitative easing etc.
However, the bonus and remuneration schemes that were prevalent in the industry have continued with a largely arrogant "you can't touch me" resistance. 

There have been few moral victories where name and shame has suddenly instilled what should be an inbuilt, ethical value set.

The role of government: Brown, King, and advisors, in the UK; Greenspan, Clinton and Bush in the US, was also significant in the loosening of credit policy and banking regulation.

As yet, no-one has been held to account for their role and, although Fred Goodwin lost his knighthood, I am certain that there are more than a few other undeserving knights of the realm that are equally open to criticism for their part in the credit crunch but just happened to have moved on before the bubble burst or managed to hard face the criticism.

I really think that the Banking industry needs to do more if it wants to prevent criticism as opposed to the current practice of trying to divert it like an illusionist. But as with their activities leading up to the credit crunch smoke and mirrors would seem to be a suitable metaphor and played a significant part in the interbank dealing that got us here, as well as with clients.

There also seems to be very little in terms of recent news: bonuses, bad debts (Rain followed by thundery showers: Spanish woes; Britain's banks; and RBS.), bad "hedges" (JP Morgan's made up (synthetic!) credit securities.) to suggest that anything has changed within the industry other than it has kept its head low hoping that memory will be short and the global goose economy will start laying golden eggs again.

If they could park their arrogance to one side it would be surely be more beneficial to their image and real world profits (as opposed to paper), if they were to hold their hands up, recognise risks and concerns and fix them.
After all it would be very difficult to criticise transparency, modesty, and openness but it could attract admirers and business with an image built upon the pillars of security, honesty, and ethics.

Related article links: Moody's facing backlash as markets shrug off decision to downgrade world's biggest lenders

Related posts:
Rain followed by thundery showers: Spanish woes; Britain's banks; and RBS.
JP Morgan's made up (synthetic!) credit securities.

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