ABC-elect Welby on banking reform

The Archbishop-elect of Canterbury, Justin Welby, has an op-ed at on banking reform. He stresses “it isn’t regulations, but virtue and leadership embedded within corporate cultures” that is the foundation of reform:

I think a number of practical steps must be taken.

First, utility banking must be separated from investment banking. Utility banking should have utility returns and — like the provision of water, electricity and gas — should be regulated so as to ensure minimal risk and maximum effectiveness. Exactly where the boundary between these two forms of banking is drawn can be debated, but drawn it must be.

Second, I am deeply suspicious of the intensely complex regulatory structures that are emerging out of the crisis. They are well-intentioned, but impossible to operate. My own experience of heading a large organization in risky areas (in my case, a hospital) showed me that the more complex one makes the regulation, the less likely it is to be adhered to. The head of a major bank whom I interviewed recently told me they had 3,500 compliance staff and 900 lawyers. Good luck with that!

The reason I started out with the story of my own rescue from an ethical slip is that to me it demonstrates that it isn’t regulations, but virtue and leadership embedded within corporate cultures, that stops people from stumbling when under pressure.

Third, it seems essential to ensure that all those working in financial services have professional qualifications. In the U.K., anyone involved in managing other people’s money has to pass exams. This should be the same if they are dealing in foreign exchange, derivatives or proprietary trading for a bank. Qualifications in mathematics are not the same as qualifications that enable people to reflect on their own conduct and examine their own consciences as a matter of self-discipline, in the same way as they seek to balance their book at the end of a trading day.

There are no simple answers to the current crisis in banking, but there are simple principles. They come down to saying that financial services must serve society, and not rule it. They must be integrated into the economy, not semidetached. They must recognize human fallibility, not assume the effectiveness of human imagination.

As a member of the House of Lords, Welby sits on the U.K. Parliamentary Commission on Banking Standards.

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