Banking and its regulation

Bank of England  (BOE)                                                                       Reserve Bank of India(RBI)

BOE                                                                                    RBI

Banking in recent past has also changed because of :

A. Technology – I remember when I first started at a bank,  our major job was to calculate  interest, balance books, all sorts of tasks were being performed manually, technology has brought a quantum leap in banking mostly for the better, but as one of my old bosses used to say our stock in trade is money by increasing the velocity of money, we can gain a lot of money but other other hand loose even more, before we even know about the loss !

One side effect, in the UK I observe that banks have basically de-skilled in their frontline staff.

B. Deregulation – I came to the UK from India. In India most of the banking sector is dominated by the government owned banks. It has its advantages like mis-selling does not occur but a bigger negative side is the banks are not customer focused or competitive.

But the Central Bank (RBI) is very active and helps a lot in providing guidance and support. Reserve bank is  truly  a lender of last resort and thus have an omnipotent presence in the market, it does not hide behind rules and procedures as I have noticed in BOE’s case.

One of the most surprising thing I came to know after the crash was that BOE did not see the housing asset bubble as its problem. Now we have PRA in the UK with a mandate to oversee the market risk, before this as per BOE’s interpretation of its own job profile, it was not their job to see what was happening in the market.

All these scams like LIBOR manipulation, miss selling of PPI, miss selling interest hedging products, selling of card lost protection (when one did  not even need it as per law), FX rate rigging were happening in the market. Even de-skilled frontline staff were aware of them, it’s hard to believe BOE was not aware of them. The problem was, BOE thought it was not their problem.

This is a simple error which happens when there are more than one regulator, one regulator thinks its the other’s job and vice versa and nobody does the job!

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