Bank of England admits its financial crisis failure

May 18, 2012 at 11:15 am

Mervyn King, the governor for the Bank of England, finally admitted that he could have done more to spot the signs of financial crisis and alert the correct people.

In a speech for the Today programme lecture, King confessed that Bank of England regulators should have noticed that UK banks had become too important to fail but were borrowing too much to sustain their activity. He stated: “With the benefit of hindsight, we should have shouted from the rooftops.” He went on to advocate that Gordon Brown’s decision in 1997 to move regulation to the Financial Service Authority (FSA), left the Bank with inadequate authority to do little more than “publish(ing) reports and preach(ing) sermons.”

The governor proceeded to blame the banks for the recession, including his own, and strongly recommended a complete overhaul of the current financial system. King stressed that “to make our economy safer” it is vital to separate retail banking from “risky investment banking.” These remarks from King work in favour of the Chancellor’s decision for planned legislation to segregate the two completely by 2015.

In response to the acknowledgment of guilt, MPs have immediately called for an investigation into the Bank of England’s role in the financial crisis of 2007/2008. John Mann, Labour member of the committee, stressed the importance of an inquiry by saying: “We need to know where the Bank failed, and why. We also need to look at his role, because he was a big part of the problem.” When approached in a BBC interview on 3rd May, King snubbed rumours of him being ‘scared’ of a full scale investigation, saying that he is “very happy” for it to go ahead but felt the one in 2008 was sufficient.

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UK and France refuse EU bank plan

May 15, 2012 at 11:22 am

Britain and France rejected EU bank plans to insure banks against future failures in a lengthy 16 hour meeting on 2nd May.

Michel Barnier, EU internal market commissioner, has laid out plans to collect national funds from all EU member states to help prevent further economic crisis. The plan to gather 1% VAT from all EU member states is an attempt to provide an income to reorganise or stem issues in failing banks. The second major idea is to collect a levy on all financial transactions, providing a central kitty. The European Commission sees this as a collective response to preventing future financial malfunction. Barnier states that these measures could produce a combined total of 60 million Euros, increasing the budget until 2020 to around a trillion Euros.

The UK has rejected this idea on the basis of it being a ‘moral hazard’. George Osborne, Britain’s Chancellor of the Exchequer feels that “The purpose of the bank levy is to raise money for general expenditure purposes” and therefore believes that a levy solely for banks is similar to an insurance premium, making banks feel entitled to a bail-out if they find themselves in trouble. France is said to have similar concerns over the financial plan. Osborne goes on to say that “If we walk away from this table with 27 countries all having gotten some kind of concession for their national banking issues, we will have completely failed and it won’t just be a political failure; it will be potentially a serious economic failure for our continent.”

Despite the drawn out meeting, the EU commissioner threw out the idea of complete agreement being necessary and was happy to settle on a majority vote. In terms of Britain, he suggested that if they were not in agreement, they would have to “go it alone”. German government officials have commented on the disagreement by suggesting that both Britain and France’s obstinacy is concerned more with needing the funds to ease their own national budgets than being a “moral hazard”.

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Barclay’s rebellion against bankers’ bonuses

May 5, 2012 at 11:18 am

Small shareholders of Barclays have sparked a rebellion against bankers’ pay and bonuses. The rebellion is said to be the biggest backlash since the start of the financial crisis.

Shareholders queued in the rain last Friday (26th April) to voice their opinions at Barclays’ Annual General Meeting, held at Royal Festival Hall, London. The meeting took a negative turn when shareholders, who make up around a third of Barclays’ shares, voted against proposed pay packages.

2 billion of the votes cast protested against Barclays’ pay proposals, whilst half a billion shareholders, ranging from members of the public to large powerful corporations, abstained from voting. This made a total of 31.4% of shareholders refusing to support pay at Barclays, which included Bob Diamond’s (chief of Barclays) package with a value of £26.6 million. Furthermore, 21% of investors launched a similar revolt by refusing to re-elect Alison Carnworth, the head of Barclays’ remuneration committee, as a director.

The rebellion strikes after only £730 million was distributed to shareholders last year, whilst £2.15 billion was received in bonuses by executives. Shareholders are said to be equally outraged at Barclays paying Bob Diamond £5.75 million to cover a US tax bill. Investors complain that pay packages are not reflective of the bank’s performance. George Dallas, director of corporate governance at F&C, confirms this by saying: “We voted against the report because we do not believe the remuneration committee exercised sufficient discretion, by granting substantial bonus awards for a year in which the company’s performance was mixed.”

Despite the embarrassing backlash for Barclays, the bank does have the overall right to ignore shareholders’ complaints on the issue. This showed in Diamond’s attempt to defend the bank’s extortionate bonuses by saying “We (Barclays) need to balance the pace of change with ensuring we attract the best people.” In spite of this defensive testimonial, it is clear that Barclays need to think about taking serious action in terms of appeasing their shareholders on this matter.

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AIB mis-charging costs 3.1 million Euros in pay-outs

May 1, 2012 at 11:09 am

In the midst of the Payment Protection Insurance (PPI) scandal, Allied Irish Bank has confirmed that it will be refunding €3.1 million to around 11,500 customers for the mis-sale of insurance products – an average of €270 per customer.

After recently being fined €2 million by The Central Bank, state-owned Allied Irish Bank has now been ordered by The Financial Services Authority to write to every customer that may have been affected by this blunder. The letter sent by Allied Irish Bank vaguely stated that there had been ‘inconsistencies’ in the sale of insurance and a guide to claiming the money back. When confronted over the alleged ‘inconsistencies’ by a BBC correspondent, Allied Irish Bank refused to divulge any more information.

Allied Irish Bank has, however, informed the public that the errors were found during a review of credit card accounts and relate to Payment Protection Plans, travel insurance and card protection. It is thought that the inaccuracies stem from issues in the bank’s internal verification systems and failures to validate customer information correctly in cases of contradictory information on application forms. It is said that alterations are being made internally to these systems to prevent an episode like this from occurring in the future.

In terms of the refunds, Allied Irish Bank has said that the review programme was carried out according to pre-determined procedures relating to customer refunds. In any cases of doubt, the benefit has been given in the customers’ favour as an overarching gesture of the bank’s apology. The Central Bank has been made aware of this issue and is now launching an investigation.

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