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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Leader: Trump and an age of disorder

Mr Trump’s disregard for domestic and international norms represents an unprecedented challenge to established institutions.

The US presidency has not always been held by men of distinction and honour, but Donald Trump is by some distance its least qualified occupant. The leader of the world’s sole superpower has no record of political or military service and is ignorant of foreign affairs. Throughout his campaign, he repeatedly showed himself to be a racist, a misogynist, a braggart and a narcissist.

The naive hope that Mr Trump’s victory would herald a great moderation was dispelled by his conduct during the transition. He compared his country’s intelligence services to those of Nazi Germany and repeatedly denied Russian interference in the election. He derided Nato as “obsolete” and predicted the demise of the European Union. He reaffirmed his commitment to dismantling Obamacare and to overturning Roe v Wade. He doled out jobs to white nationalists, protectionists and family members. He denounced US citizens for demonstrating against him. Asked whether he regretted any part of his vulgar campaign, he replied: “No, I won.”

Of all his predilections, Mr Trump’s affection for Vladimir Putin is perhaps the most troubling. When the 2012 Republican presidential nominee, Mitt Romney, warned that Russia was the “number one geopolitical foe” of the US, he was mocked by Barack Obama. Yet his remark proved prescient. Rather than regarding Mr Putin as a foe, however, Mr Trump fetes him as a friend. The Russian president aims to use the US president’s goodwill to secure the removal of American sanctions, recognition of Russia’s annexation of Crimea and respect for the murderous reign of the Syrian president, Bashar al-Assad. He has a worryingly high chance of success.

Whether or not Mr Trump has personal motives for his fealty (as a lurid security dossier alleges), he and Mr Putin share a political outlook. Both men desire a world in which “strongmen” are free to abuse their citizens’ human rights without fear of external rebuke. Mr Trump’s refusal to commit to Nato’s principle of collective defence provides Mr Putin with every incentive to pursue his expansionist desires. The historic achievement of peace and stability in eastern Europe is in danger.

As he seeks reconciliation with Russia, Mr Trump is simultaneously pursuing conflict with China. He broke with precedent by speaking on the telephone with the Taiwanese president, Tsai Ing-wen, and used Twitter to berate the Chinese government. Rex Tillerson, Mr Trump’s secretary of state nominee, has threatened an American blockade of the South China Sea islands.

Mr Trump’s disregard for domestic and international norms represents an unprecedented challenge to established institutions. The US constitution, with its separation of powers, was designed to restrain autocrats such as the new president. Yet, in addition to the White House, the Republicans also control Congress and two-thirds of governorships and state houses. Mr Trump’s first Supreme Court appointment will ensure a conservative judicial majority. The decline of established print titles and the growth of “fake news” weaken another source of accountability.

In these circumstances, there is a heightened responsibility on the US’s allies to challenge, rather than to indulge, Mr Trump. Angela Merkel’s warning that co-operation was conditional on his respect for liberal and democratic values was a model of the former. Michael Gove’s obsequious interview with Mr Trump was a dismal example of the latter.

Theresa May has rightly rebuked the president for his treatment of women and has toughened Britain’s stance against Russian revanchism. Yet, although the UK must maintain working relations with the US, she should not allow the prospect of a future trade deal to skew her attitude towards Mr Trump. Any agreement is years away and the president’s protectionist proclivities could yet thwart British hopes of a beneficial outcome.

The diplomatic and political conventions embodied by the “special relationship” have endured for more than seven decades. However, Mr Trump’s election may necessitate their demise. It was the belief that the UK must stand “shoulder to shoulder” with the US that led Tony Blair into the ruinous Iraq War. In this new age of disorder, Western leaders must avoid being willing accomplices to Mr Trump’s agenda. Intense scepticism, rather than sycophancy, should define their response.

This article first appeared in the 19 January 2016 issue of the New Statesman, The Trump era