Reuters reports today that former senator Paul Sarbanes, of eponymous financial legislative fame, has been (indirectly) speaking his book: banks need more legislation.
“I don’t think you can set access to the Fed in this unprecedented manner without more oversight from the Fed and other agencies,” said Sarbanes, speaking after an Institutional Investor Educational Foundation conference in Paris.
“It’s not a free pass. I think they’ll review the investment banks more closely than they have in the past.”
Whether Sarbanes was actually coming out in support of new legislation or not (he seems rather, simply to be rather passively observing that it may well happen) is somewhat besides the point. Banks are coming in for a hard time: as the dust settles banks can surely expect politicians to be on their case. The FSA’s Hector Sants was only last week speaking hopefully of the demise of complicated securitised products such as CDO-squared and other such complex crunch paraphernalia. A couple of week’s before and bookish Mervyn King was decrying the City’s bonus culture.
Springing to the defence of the banks, however, is this week’s edition of The Economist:
Modern finance is under attack. Yet the banking system has done much better than it is given credit for.
Forget bonuses, moral hazard and greed. The market approach to finance is efficient:
Some change is desirable and inevitable. Most of it will be supplied, belatedly, by the market itself-especially if it is bathed in the cleansing sunlight of transparency. America’s mortgage business is already transformed. Hundreds of unregulated lenders have disappeared, as has the fatally lazy assumption that house prices do not fall. Demand for complex securitised products has shrivelled and the most complex may never come back. The safest forecast in banking is that the next crisis will not be rooted in America’s mortgage market.
It’s Rome, or it’s the barbarians.
After 20 years of growth, the flaws of modern finance are painfully clear. Do not forget its strengths.