Are CEO salaries out of control?

Last year, the median pay for the UK’s FTSE 100 CEOs was 80 times the median salary of their employees. As Patrick Temple-West reports, in the US the gulf is even greater, with S&P 500 CEOs earning on average 245 times more. The massive disparity has prompted criticism from many investors, with even billionaire Carl Icahn describing such wage gaps as “unconscionable”. From FT Moral Money.

Credit Suisse: what next for the crisis-hit bank?

The Credit Suisse story is about how finance went wrong at one of Switzerland's most important institutions and one of the most important banks in Europe. It's a tale of high-profile scandals, from corporate espionage to cocaine smugglers and oligarchs. But what does the future hold for the venerable institution? Credit Suisse's new chairman, Financial Times reporters and banking industry experts explain it all.

Business: go woke or go broke? - The Economist

Today consumers want to buy more sustainable products, employees want to work for firms that share their values, and in the investment world, ESG funds are all the rage. How are companies responding to these shifting demands and can businesses really do well by doing good? 

 

How to Plan and Implement an Ethics & Compliance Risk Assessment Program

An ethics and compliance risk assessment is the foundation of an effective ethics and compliance risk management program. This detailed course provides a 12-stage framework that will help you complete your own ethics and compliance risk assessment.

In this hands-on course, we provide a wealth of practical tips on how to go about these tasks. Along the way we are also going to look at a number of major components and themes relating to the ethics and compliance risk assessment; items such as;

• Definitions.
• Understanding why ethics and compliance risk assessment are so important.
• Regulations and compliance requirements in the US, the UK, France and the OECD.
• How the COVID-19 pandemic changed the risk profile and what we need to do to counter these additional risks.
• Details of the main risk management systems currently in use.

With a completed ethics and compliance risk assessment and armed with your findings and action plan, you will be equipped to develop and implement an effective ethics and compliance risk management program.

As an added bonus, the approach that we use in this course is easily applied to any form of compliance, ethics, or conduct risk. What this means is that that the process will work equally well for data privacy, bribery and corruption, conflict of interest, financial integrity and fraud, modern slavery and other forms of economic crime.

To register click HERE.

 

“Must Reads” for 10 February

Today’s “Must reads” in banking, fintech, payments, cybersecurity and risk management include:

• Bridging the Trust Gap: How Fintechs Beat Incumbents at Their Own Game
• Has JP Morgan Chase learnt the lessons of Finn and Bó? - FinTech Futures
• New Ethical Concerns in Online Privacy and Data Security
• Common themes from financial statement fraud SEC enforcement actions
• Open Banking Is Now Essential Banking: A New Decade’s Global Pressures And Best Responses, Part One
• FinTech in 2021: Top predictions and trends

The Ugly Unethical Underside of Silicon Valley

As the list of startup scandals grows, it’s time to ask whether entrepreneurs are taking “fake it till you make it” too far.

Recklessness with the financial truth is often a sign of an economic bubble about to deflate—see the dot-bombs and Enron in late 2000 and the banks amid the 2007 subprime mortgage crisis. Scandals don’t cause recessions, but they can help trigger one. As White warned her Stanford audience: “Who loses when the truth behind inflated valuations is revealed? I think we all do.”

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Do Bankers Have a Conscience?

By Stanley Epstein

Banks are once again up to their old tricks. It seems as the events of 2008 and beyond have been forgotten. Greed seems to have taken precedence once again prompting the question of bankers and their conscience.

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The events over the past couple of years have set me thinking. Just consider what we have seen since the summer of 2007. Starting as an almost imperceptible murmur of thunder beyond the horizon, we have been subjected to a violent tempest which has swept the globe. The worst financial crisis since the Great Depression! And now nearly nine years on the storm is not yet over. The churning maelstrom that still surrounds the financial system is going to take a whole while longer before it settles down and a reasonable sense of tranquility and security returns.

As events progressed into 2008 and beyond, many of the surviving icons of the financial world began to revert to their old form of massive profits, ridiculously huge staff bonuses, and a nauseating sense of self importance. All of this thanks to the graciousness of various governments who had squandered vast amounts of taxpayers’ money to keep the “system” afloat. And this to the determent of the real economy.

Just watching some of the goings on, such as the announcement of massive bonuses to staff or the then pronouncement of Goldman Sachs’ boss that his organization was “doing God’s work” prompted the question; “Do bankers have a conscience?”

Just consider the facts. Banks are supposed to be financial intermediaries. This means that they take in deposits from those folk who happen to have surplus funds and they then lend this to those folk who are short of funds, be it temporary, like a firm who needs money to cover cyclical fluctuations such as paying weekly wages while they wait for creditor payments. Banks also lend long term such as for mortgages. Either way, before it lends, a bank is supposed to consider the risk that it faces in making the loan. Can the borrower reasonably be expected to be able to meet the loan conditions and repay the loan? Pretty basic stuff.

There is nothing wrong with the theory. Along the way the bank should be able to profit from its activities. A caveat here though; basic economic theory does not see a bank precisely as one sees a firm. Banks are financial facilitators while firms are there to make a profit. Naturally this is all nonsense. Banks are “firms” like any other and are permitted to make a profit, albeit a “reasonable” one.

However, looking back at the events since the 2008 meltdown, the functioning of many banks was (and still is) absolutely not anywhere near how it was supposed to be.

The reality was that in the preceding two decades prudence had been thrown to the wolves. Banks claimed that they had “evolved” (degenerated is probably a better word to use), and in the process had created in-house casinos, the sole function of which was to make money for themselves by taking dangerous risks. This new type of business had very little to do with the real economy.

For the uninitiated, in the terminology of economics, the “real economy” refers to activities that produce commodities. Commodities are goods and services for household consumption. This is in contrast to the financial sector that does not produce commodities. The financial sector’s role had been to assist the real economy through financial intermediation (the redirection and allocation of money from lender to borrowers). But this had all changed.

As part of this transformation banks turned their traditional view of risk on its head. Traditionally banks were risk averse – riskier loans carried a higher interest rate. Often loans were not made because the risk of the borrower’s possible default was just too high. Under the new “casino” management style, banks started to see risk as an opportunity to make money and not something to be avoided. And with this came all sorts of “new” products, like derivatives and securitization, supposedly to diversify the risks. Risk became virtually commoditized. Risk became something that one could buy and sell. Banks ceased to try to avoid risk; on the contrary they wanted to acquire more risk.

The products that the banks created to do this had nothing to do with helping to facilitate trade, commerce or industry – the production of goods and services. These new bank “products” were synthetic. They had nothing whatsoever to do with taking on the risk of entrepreneurship in the real economy.

The banks however did not (and still do not) see what they were doing as gambling. On the contrary they saw these risks as being sufficiently diversified so that “nothing really bad” could happen.

Of course this last view was nonsense and should never have been entertained by a prudent banker. It could, and as we know, it did go wrong – horribly wrong!

As conditions worsened a reflex reaction kicked in. As the financial positions of the banks bets turned sour banks took on even bigger financial risks to try to bail themselves out. Of course this tactic can never work as you simply dig a bigger hole for yourself, society and the economy; “Gambling on Resurrection” as Dr. Catherine Cowley of London University has so aptly called it.

These “new” products are not linked to the real economy. They are aimed at producing profits for the financial sector itself, to the detriment of the real economy.

So, do banks do bankers have a conscience?

In light of huge bonuses for staff of questionable talents; turning a blind eye to the financial requirements of the real economy; and seeing themselves as fulfilling some higher purpose the answer has to be a definite “No”. No doubt there are exceptions, but these bankers seem to be well hidden.

Why the Banking Industry Needs Reform

Five Scandals That Show Why We Need Structural Reform in the Banking Industry

From Truthout –

“Multibillion-dollar scandals have continued to occur at big banks across the world, throwing the integrity of the banking system into question. The current state of banking ethics, the enormous size of banks and the banks' inability to detect real-time fraud all contribute to the ongoing failures in preventing serious banking crimes. In addition to this, the big banks have complicated organizational structures with thousands of subsidiaries operating across multiple markets. Bank acquisitions and cross-ownerships across the globe can make it difficult to unwind trades and transactions in the case of a bank's failure during a crisis.”

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