The big shift for banks: regulators replace investors

From Dr Peter D. Hahn

Sir, The letter by Marcus Agius and others on September 29 indirectly seems to reply to your editorial of September 27 (“A sector still in need of reform”), and Lloyd Blankfein comments on European regulation (report, September 30) all noticeably miss the big change in banking that is going on today. Regulators, whether directly or indirectly (and I think undesirably), are taking over the roles of shareholders. Indeed the FT’s editorial didn’t discuss shareholders, and perhaps Mr Blankfein doesn’t want to broach the subject of this role for regulators.

The complete disconnect of ownership and control at many of the world’s major banks was indeed a cause of the financial crisis, and Alistair Darling provided an amazing test of whether shareholders regained control post-crisis with his bonus tax (it failed to encourage capital building over bonuses miserably). Effectively, new capital rules, bonus rules, etc, are more than the typical substitute for market failings (regulation’s normal role), they are dictating strategy, management structure and ultimately will drive returns. How awful, but if the legal owners won’t or can’t do it, someone has to.

Peter D. Hahn,

Faculty of Finance,

Cass Business School,

London EC1, UK