The Levin report( April 2011)
The Levin report, published in April 2011 by the US Senate Permanent Subcommittee on Investigations, provides a detailed and forensic account of events leading up to the global financial crash.
Senator Carl Levin and his colleagues explored in depth the actions of regulators, the credit agencies, and investment banks. They have relied on testimony given at Senate Hearings, along with a mass of documentation and emails obtained (under subpoena) from the parties involved.
A large part of the 600 page report is taken up with an account of the dealings of Deutsche Bank and Goldman Sachs. The report exposes the market abuse, malpractice, and conflicts of interest rife within both organisations during 2006-9.
This extract gives a flavour of the Senate sub-committee’s findings:
‘Both Goldman Sachs and Deutsche Bank underwrote securities using loans from subprime lenders known for issuing high risk, poor quality mortgages, and sold risky securities to investors across the United States and around the world. They also enabled the lenders to acquire new funds to originate still more high risk, poor quality loans. Both sold CDO securities without full disclosure of the negative views of some of their employees regarding the underlying assets and, in the case of Goldman, without full disclosure that it was shorting the very CDO securities it was marketing, raising questions about whether Goldman complied with its obligations to issue suitable investment recommendations and disclose material adverse interests.’
The level of detail in the report, naming participants and recording their actions and emails, goes far beyond anything as yet available in the UK. It remains uncertain whether the US Justice Department and Securities and Exchange Commission will take further action as a result of its findings. A series of civil cases, initiated by clients of Goldman’s who lost large sums, are continuing.
It is not clear why the US system allows for such information to be put before the public, while the FSA investigation into the collapse of Royal Bank of Scotland remains under wraps (see ‘latest news’ section of this website). US citizen are being given a fuller picture of the causes of the economic pain now foisted on them, as compared with us in the UK.
The full version of the Levin Report is at this link
Financial Crisis Inquiry Commission (January 2011)
The Financial Crisis Inquiry Commission was created to “examine the causes, domestic and global, of the current financial and economic crisis in the United States.” The Commission was established as part of the Fraud Enforcement and Recovery Act (Public Law 111-21) passed by Congress and signed by the President in May 2009. This independent, 10-member panel was composed of private citizens with experience in areas such as housing, economics, finance, market regulation, banking and consumer protection. Six members of the Commission were appointed by the Democratic leadership of Congress and four by the Republican leadership. The Commission’s statutory instructions set out 22 specific topics for inquiry and called for the examination of the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government.
The Commission delivered its report to the President, Congress and the American people on 27th January 2011. The report can be read here http://www.fcic.gov/
The Special Investigation Commission (Iceland)
The SIC delivered its report on April 12 2010. The Commission was established by Act No. 142/2008 by Althingi, the Icelandic Parliament, in December 2008, to investigate and analyse the processes leading to the collapse of the three main banks in Iceland. Members of the Commission are Supreme Court Judge, Mr. Páll Hreinsson, Parliamentary Ombudsman of Iceland, Mr. Tryggvi Gunnarsson, and Mrs. Sigríður Benediktsdóttir Ph.D., lecturer and associate chair at Yale University, USA.
See the report at http://sic.althingi.is/
Commission of Investigation into the Banking Sector in Ireland
On 19th January 2010, the Irish Government agreed a detailed framework for an inquiry into the banking crisis and for its subsequent consideration by the Dáil. The Government has already commissioned two reports, which were published on 31st May 2010.
The Government established a Statutory Commission of Investigation on 21 September, 2010. Mr. Peter Nyberg (former Director General for Financial Services at the Finnish Ministry of Finance) was appointed as the sole Member of the Commission.
Peter Nyberg’s report was published in April 2011, and is frightening reading. He refers to Irish banks taking risks on an “almost unbelievable” scale, a complicit public willing to “let the good times roll” and a lack of regulation all combining to to cause the collapse of the Irish banking system following a credit-fuelled property bubble which ended abruptly in 2006. Nyberg points out that auditors as well as Government bodies did little or nothing to intervene, and that international organisations such as the OECD and IMF were only occasionally mildly critical (and often admiring) of what was happening in Ireland.
The Turner Review (April 2009)
Following the banking crisis, the then Chancellor of the Exchequer (Alistair Darling) asked Lord Turner, in his capacity as FSA Chairman, to review and make recommendations for reforming UK and international approaches to the way banks are regulated.
The Turner Review was published in April 2009. It identified three underlying causes of the crisis – macro-economic imbalances, financial innovation of little social value and important deficiencies in key bank capital and liquidity regulations. These were underpinned by an exaggerated faith in rational and self-correcting markets.
Lord Turner said ‘much financial innovation has proved of little value, and market discipline of individual bank strategies has often proved ineffective’.
Of the recommendations made in the Review, some have been put into effect, while others have been overtaken by the Coalition Government’s decision to wind up the FSA and redistribute its functions. Issues such as greater regulation of shadow banking and of credit agencies, requiring international cooperation, have yet to be resolved.
The full report is at this link The Turner Review
Independent Commission on Banking (April 2011)
On 16 June 2010, the Chancellor of the Exchequer in the incoming Coalition Government (George Osborne) announced the creation of the Independent Commission on Banking, chaired by Sir John Vickers. The Commission has been asked to consider structural and related non-structural reforms to the UK banking sector to promote financial stability and competition, and to make recommendations to the Government by the end of September 2011.
The Commission published its interim report on April 11th 2011 and its final report in September 2011. The Government has accepted the main recommendation, of ringfencing retail banking from investment banking, but the timescale for implementing this and othe rproposals is lengthy (extending to 2019). For background to the Commission see at http://bankingcommission.independent.gov.uk/bankingcommission/
Treasury Committee of the House of Commons (see also under ‘Latest news’ section)
The Treasury Committee has conducted a series of inquiries relevant to the failures within the UK banking system.
These inquiries have generated reports and recommendations to which the Government, along with other parties such as the Bank of England and the Financial Services Authority, have responded.
The questioning of witnesses at these sessions has often been robust, and the committee has not minced its words in its reports. Some might argue that the ground already covered negates the need for an independent truth commission. There are several reasons to think otherwise:
- sessions of the committee, spread over many months and years, have had limited resonance with the public. They have not provided a vent for public frustration and anger at the actions of the banking community.
- many of the recommendations made by the Treasury Committee have not been taken up by Government.
- witnesses appear to see such sessions as a sparring match with MPs, a group of people for whom they seem to hold little respect. Sustained questioning by peers from other professions, along with members of the public (as suggested for the truth commission) might have more impact in achieving behavioural change.
During the 2007-8 session, the Committee took evidence and reported on
During the 2008-9 session, the Committee agreed terms of reference for a series of further inquiries under the heading of the Banking Crisis. These included:
- Dealing with the Failure of the UK Banks
- Regulation and Supervision
- Banking Crisis: Reforming corporate governance and pay in the City
- Banking Crisis: the impact of the failure of Icelandic Banks
- Banking Crisis: international dimensions
During the 2009-10 session, the Committee published a further report:
In the last session of Parliament, the Treasury Committee conducted an inquiry on Choice and Competition in the Banking Sector. This has included witness evidence given by Bob Diamond, CEO of Barclays Bank, at which issues of remuneration were discussed at length. At this session, Bob Diamond defended the ‘universal integrated model of banking’ (i.e. combining retail and investment).
Bob Diamond gave little or no ground on the issue of bonuses, and made clear that any voluntary restraint on payment levels would have to be balanced by the demands of a competitive global market.
One of the statements he made to the committee was: ‘I think one of the things I have to hold myself accountable for, and as an industry, is we’ve done a very poor job over the years of explaining how the compensation process is integrated with all the other aspects as I talked about. We’ve done a poor job of explaining how investment banks, in particular, contribute to society and contribute to our clients. I certainly pledge to do more in that regard’.
A truth commission would give him, and other leading bankers, full opportunity to meet such a pledge.
Project Merlin was not an inquiry or investigation into the financial services sector, but a ‘dialogue’ between the Government and the major UK banks, leading to a formal agreement on levels of bank lending and bonus payments. The four banks involved were Barclays, Lloyds Banking Group, HSBC, and Royal bank of Scotland, with Santander signing up to parts of the agreement.
The text of the Merlin Agreement as announced by George Osborne on February 11th 2011 can be seen at http://www.hm-treasury.gov.uk/d/bank_agreement_090211.pdf
Reaction to the terms of the agreement has generally been sceptical. Commitments by the banks to specific lending levels in 2011 are at commercial terms, and subject to the banks’ own judgement on their duties to shareholders. Commitment on ‘restraint’ of bonuses has not stood in the way of a further round of major bonus payments announced since the agreement was signed.