After a marathon weekend to rescue the banking system from complete meltdown, the various headlines of today’s FT seem to point to some convergence of thinking (finally). Here are some of the highlights:
“There was a strong sense that a serious regulatory backlash was coming and that the best the sector could do was to get ahead of the game and promise to clean up its own act”. According to an article in today’s FT, this was the dominating perception amongst finance practitioners attending the Institute for International Finance’s dinner in Washington last night.
Josef Ackermann, Deutsche Bank chief executive and Chairman of the Institute, unequivocally stressed that “we want to be one of the frontrunners in improving our industry before we get asked by the regulators and governments to do so”.
Meanwhile, also in today’s FT, George Soros offers a detailed plan to recapitalise the banking system using the US$ 700bn bail-out package agreed by Congress. He also warns that “time if of the essence” and that “only by promptly announcing a comprehensive set of measures and executing them vigorously can the situation be brought under control”.
Clive Crook, in his article, puts forward an idea promoted by Pr. Avinash Persaud, Chairman of Intelligence Capital Limited and a member of the Network for Sustainable Financial Markets, to introduce “contra-cyclical capital requirements” which would “force banks to build up capital faster when their lending is expanding most rapidly.. [effectively] taxing the expansion of credit and building a bigger cushion for any bust”.
Finally, the FTfm dedicated a section to global pensions and published an article highlighting the fact that 3/4 of UK pension funds had a responsible investment strategy (according to a survey conducted by the UK Social Investment Forum). In the case of Barclays UK Retirement Fund, this strategy may have paid off; the emphasis on good governance has helped the fund win important mandates, according to its fund manager Mark Hyde Marrison (watch the video here).
Similarly the UK Environment Agency (a pension fund with £1.5bn AUM) has also announced that “it would only hire UNPRI signatories for future mandates”. This anecdotal evidence is encouraging because it suggests that the principles that underscore sustainability investing can have a material impact, not only on investment returns, but also on asset managers’ ability to attract new clients.
Whilst this starts to provide a systemic approach to the industry, we have yet to hear more concerted voices from the responsible investment community on other industry-wide issues that require collaborative efforts with a view to improve financial market mechanisms for the long-run.
I think we need to hear a comprehensive plan to create more jobs, that will in turn create more stability for consumers and investors.