The curious case of Standard Chartered

And another bad week for banking.

This has been another bad week for the banking industry. For all that some sections of the media will enjoy presenting the allegations against Standard Chartered as the latest example of greedy bankers putting financial interests before ethics or morals, this episode feels more nuanced

That it involves the self-proclaimed "boring bank" Standard Chartered, previously praised by myself and several much wiser industry experts for its prudence and caution through boom and subsequent financial crisis, is unexpected. That it involves a UK bank allegedly consorting with drug dealers, terrorists and Iranian militants seems even stranger. So what does this episode teach us about the state of banking?

1. The banking industry is no longer held in high regard. Had the allegations been made against a firm in another industry or profession there would have been genuine shock as well as outrage. But we appear to have reached some kind of greed fatigue when it comes to bankers. The only surprise at this latest revelation was that it involved a bank formerly thought to be above the rest. Standard Chartered’s reputation (not to mention its share price) has taken a hit and will take a while to recover.

2. International finance is extremely complex. This is easy to believe because it’s only when a fresh scandal breaks that some new complexity of the financial system is revealed. Very few outside the Square Mile knew a collatoralized debt obligation from a credit default swap before the 2008 financial crisis. Some within the City (including senior figures) struggled to explain them even when they’d turned bad and taxpayers were footing the bill. Every awkward revelation since has unveiled a bit more complexity. One reason ex-Barclays CEO Bob Diamond gave little away to the Treasury Select Committee was because they didn’t know enough of the detail. A simple question from Bob about which Libor rate they were referring to would have stymied most of the committee. Very few people understand enough to take bankers to task. Regulating and overseeing this complexity is tough. It’s hard to even begin to guess where the next scandal will be, what fresh villainy it will reveal and what new complexity will be uncovered. We need banking legislation that can cover what Donald Rumsfeld would call the unknown unknowns.

3. We need prudence back. It became something of a comical phrase after Gordon Brown first wore it out as chancellor and then abandoned it when the sums got tricky. But effective regulation of banks requires prudent valuation of their complex financial dealing and of assets and liabilities. It used to be an essential element of all accounting best practice, but has been increasingly forgotten as modern standards (including IFRS) place the emphasis elsewhere. More thorough auditing and prudent valuation of all banking activities would be a sensible start.

4. We need banks to exercise self-control. It’s obvious that current systems for regulation haven’t worked. While some changes are taking place on a national level, there is still not enough international co-operation. On the plus side, the most recent scandals have come to light as a result of regulators investigating and reporting on alleged bad behaviour. But it’s a slow process and is all too retrospective. As always, financiers are innovating ahead of regulators. Bankers hate the idea of introducing excessive regulation on financial markets. And it wouldn’t help the world economy. But they have to show that the financial services industry can take responsibility for its own actions. We don’t need more regulation, but we do need better, more effective regulation. This requires better internal auditing, stronger compliance regimes and more self-control on the part of the banks. To use Diamond’s phrase, we need more banks with a culture where people behave ethically when no one’s watching.

5. Regulators are also subjective. One of the problems the Standard Chartered case has highlighted is that the complexity, power and importance of banking itself means that banking regulation must also be highly complex. It also attracts the attention of some who would seek to use the potential power for other means. The focus of the Standard Chartered allegations on dealing with Iran has led some observers to suggest the claims serve a wider political purpose in the US. While it’s not clear what that purpose might be, other than rubbishing London at the expense of New York, the claim highlights how national best interests are rarely aligned with either individual commercial goals or the wider global good.

6. It’s time for an international banking amnesty. With each revelation of wrongdoing we learn something new about the banks and something depressing about our society. We should waive further fines or punishments if all the banks agree to sign up once and for all to a thorough and totally transparent immediate assessment of all of their books. Like some sort of one-off super-audit, it would allow them to own up now to all the things they would normally like auditors and regulators not to see. We need to know where all the bodies are buried, right across the system.

This article first appeared in economia.

Standard Chartered. Photograph: Getty Images

Richard Cree is the Editor of Economia.

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GM should not be the monopoly of a few multinational corporations

People may be opposed to GM crops and ultimately consumers will decide what they want to eat. But people facing malnutrition or starvation do not enjoy that choice.

My parents researched malnutrition and under-nutrition in India, especially among children, and found that many diets recommended by Western nutritionists were in fact completely inapplicable to the poor. So they formulated cheap, healthy diets based on indigenous food with which people were familiar. Yet despite their many other efforts, a quarter of people in India and nearly one in nine people around the world do not have enough food to live a healthy active life.

The World Bank estimates that we will need to produce about 50 per cent more food by 2050 to feed a population of nine billion people. And the past 50 years have seen agricultural productivity soar – corn yields in the US have doubled, for example. But this has come with sharp increases in the use of fertilisers, pesticides and water which has brought its own problems. There is also no guarantee that this rate of increase in yields can be maintained.

Just as new agricultural techniques and equipment spurred on food production in the Middle Ages, and scientific crop breeding, fertilisers and pesticides did so for the Green Revolution of the 20th century, so we must rely on the latest technology to boost food production further. Genetic modification, or GM, used appropriately with proper regulation, may be part of the solution. Yet GM remains a highly contentious topic of debate where, unfortunately, the underlying facts are often obscured.

Views on GM differ across the world. Almost half of all crops grown in the US are GM, whereas widespread opposition in Europe means virtually no GM crops are grown there. In Canada, regulation is focused on the characteristics of the crop produced, while in the EU the focus is on how it has been modified. GM crops do not damage the environment by nature of their modification; GM is merely a technology, and it is the resulting product that we should be concerned about and regulate, just as we would any new product.

There are outstanding plant scientists who work on GM in the UK, but the Scottish, Welsh and Northern Irish governments have declared their opposition to GM plants. Why is there such strong opposition in a country with great trust in scientists?

About 15 years ago when GM was just emerging, its main proponents and many of the initial products were from large multinational corporations – even though it was publicly funded scientists who produced much of the initial research. Understandably, many felt GM was a means for these corporations to impose a monopoly on crops and maximise their profits. This perception was not helped by some of the practices of these big companies, such as introducing herbicide resistant crops that led to the heavy use of herbicides – often made by the same companies.

The debate became polarised, and any sense that the evidence could be rationally assessed evaporated. There have been claims made about the negative health effects and economic costs of GM crops – claims later shown to be unsubstantiated. Today, half of those in the UK do not feel well informed about GM crops.

Everyday genetic modification

GM involves the introduction of very specific genes into plants. In many ways this is much more controlled than the random mutations that are selected for in traditional plant breeding. Most of the commonly grown crops that we consider natural actually bear little resemblance to their wild ancestors, having been selectively modified through cross-breeding over the thousands of years that humans have been farming crops – in a sense, this is a form of genetic modification itself.

In any case, we accept genetic modification in many other contexts: insulin used to treat diabetes is now made by GM microbes and has almost completely replaced animal insulin, for example. Many of the top selling drugs are proteins such as antibodies made entirely by GM, and now account for a third of all new medicines (and over half of the biggest selling ones). These are used to treat a host of diseases, from breast cancer to arthritis and leukaemia.



Millions of acres growing GM crops worldwide. Fafner/ISSSA, CC BY-SA

GM has been used to create insect-resistance in plants that greatly reduces or even eliminates the need for chemical insecticides, reducing the cost to the farmer and the environment. It also has the potential to make crops more nutritious, for example by adding healthier fats or more nutritious proteins. It’s been used to introduce nutrients such as beta carotene from which the body can make vitamin A – the so-called golden rice – which prevents night blindness in children. And GM can potentially create crops that are drought resistant – something that as water becomes scarce will become increasingly important.

More than 10% of the world’s arable land is now used to grow GM plants. An extensive study conducted by the US National Academies of Sciences recently reported that there has been no evidence of ill effects linked to the consumption of any approved GM crop since the widespread commercialisation of GM products 18 years ago. It also reported that there was no conclusive evidence of environmental problems resulting from GM crops.

GM is a tool, and how we use it is up to us. It certainly does not have to be the monopoly of a few multinational corporations. We can and should have adequate regulations to ensure the safety of any new crop strain (GM or otherwise) to both ourselves and the environment, and it is up to us to decide what traits in any new plant are acceptable. People may be opposed to GM crops for a variety of reasons and ultimately consumers will decide what they want to eat. But the one in nine people in poor countries facing malnutrition or starvation do not enjoy that choice. The availability of cheap, healthy and nutritious food for them is a matter of life and death.

Alongside other improvements in farming practices, genetic modification is an important part of a sustainable solution to global food shortages. However, the motto of the Royal Society is nullius in verba; roughly, “take nobody’s word for it”. We need a well-informed debate based on an assessment of the evidence. The Royal Society has published GM Plants: questions and answers which can play its part in this. People should look at the evidence – not just loudly voiced opinions – for themselves and make up their own minds.

The ConversationVenki Ramakrishnan is President of the Royal Society, and Professor and Deputy Director at the MRC Laboratory of Molecular Biology, University of Cambridge

This article was originally published on The Conversation. Read the original article