Industry and Parliament Trust Event on European Finance Legislation

Tom Sorell and James Dempsey spoke at an event organised by the Industry and Parliament Trust on 6th March, entitled ‘Turning the Tide? How European Finance Legislation is Making Waves in the UK Economy’

A summary of the event, and our contribution to it, can be found here.

Responses to the Lambert Banking Standards Review

Sir Richard Lambert has been tasked with creating ‘an independent body that will promote high standards of competence and behaviour across the UK banking industry’.

In pursuit of this task he issued a consultation paper, following initial discussions with interested parties, inviting feedback on the conclusions reached to that point, and responses to 19 specific questions.

The different streams of the FinCris project have responded to that consultation paper, and the responses can be found on the Banking Standards Review website:

Andy Mullineux’s response

James Dempsey’s response, with additional comments from Tom Sorell

Karen Rowlingson’s, Lindsey Appleyard’s, and Jodi Gardner’s response

Two new papers on regulatory lessons from Australia

The following papers have been written by Jodi Gardner and Karen Rowlingson as part of the Responsible Lending and Borrowing workstream.

The first, by Jodi, is entitled ‘The Challenges of Regulating High-Cost, Short-Term Credit: A Comparison of UK and Australian Approaches’

The second, by Jodi and Karen, is entitled: ‘Towards a ‘cost of credit’ cap in the UK: Lessons from Australia’.

Download (PDF, 468KB)

Download (PDF, 366KB)

Lloyds Bank Employees: Victims or Villains?

This post has also appeared on James Dempsey’s website

Another day, another record fine for a banking group. This time it is Lloyds Banking group being fined £28m for incentive schemes that led to the mis-selling of individual savings accounts and income protections products between 2010 and 2012. In some cases staff were offered bonuses of up to 35% of their monthly salaries, in others £1000 in cash. On the flip side, employees who failed to meet targets were threatened with demotion – the Financial Conduct Authority (FCA) highlights the case of the individual who sold to himself, his wife and a colleague to avoid this fate. Read more »

New RBS Reports Raise Old Questions

This blog is reposted from James Dempsey’s website.

Last week two new reports appeared on the Royal Bank of Scotland, this time focusing on its activity since the financial crisis. Both, in their own ways, raise new versions of concerns that have been around since the crisis and before – (1) that penalties imposed on banks target the wrong people; and (2) that banks are still failing in one of their primary responsibilities, the good management of risk.

The more serious accusations appear in the Tomlinson Report compiled by the ‘Entrepreneur in Residence at the Department for Business, Innovation and Skills’. Tomlinson says that:

‘The experiences of many businesses across the country suggests that, at least within RBS, there are circumstances in which the banks are unnecessarily engineering a default to move the business out of local management and into their turnaround divisions, generating revenue through fees, increased margins and devalued assets.’

Whether these accusations should be upheld will be determined by the Financial Conduct Authority and the Prudential Regulation Authority, to which Vince Cable has handed the report. If they are, however, and penalties follow as a result, who will those penalties hit?

If they are financial penalties they will, primarily, hit shareholders, or in other words tax payers (who own 81% of the bank). This is a crazy state of affairs. Those who have allegedly done wrong are the employees who directed and engaged in the activity in question, not the public who are reluctant owners of the bank as a result of rescuing it from previous irresponsible activity.

The second report, by Sir Andrew Large, focuses on RBS’s SME lending operation. Some reasons it identifies why RBS failed to meet its lending targets are as follows:

  • ‘RBS’s SME lending objectives were not consistent with its tougher credit standards, and limits on certain types of lending (especially to the Commercial Real Estate sector) introduced to manage portfolio risks
  • ‘Internal restructuring had a negative impact by fragmenting responsibility for SME lending
  • ‘The ongoing SME business has had difficulty in finding the best way to deploy its people and investment budget to originate and win the lending opportunities that are available to it
  • ‘Although risk management policies are in line with good prudential standards, customer-facing staff and Credit Officers are risk averse in their behavior
  • ‘RBS lending process is time consuming and loan applications take longer than at other banks
  • ‘Credit skills of customer-facing staff that were neglected in the run up to the financial crisis have improved, but remain variable
  • ‘Until relatively recently, deposit gathering was prioritised over lending’

One way of summarising these points is that RBS is not managing risk well, since internal structures and procedures are inefficient, and behaviour is overly risk averse. Banks have rightly been criticised for helping precipitate the crisis through poor risk management, by taking on too many high risks. Now, it appears, things have gone the other way.

Banks have an obligation to manage risk well and this involves striking the right balance between recklessness and extreme risk aversion. It appears that this obligation is still not being met, although for different reasons than before.

Responsibility, blame and consequences: Who is feeling the financial crisis?

Tom Sorell looks at the roles of some of the players in the financial crisis on the Politics@Warwick blog here:

Banking for the Public Good

The accepted version of Andy Mullineux’s paper ‘Banking for the Public Good’ can be found here.

New Presentation by Eliana Lauretta

Report Title: Presentation in the International Workshop on Economic Science with Heterogeneous Interacting Agents (WEHIA) 2013 – 20/22 June – Iceland.

Author: Eliana Lauretta

Position: Visiting PhD Research Fellow – Department of Accounting and Finance – University of Birmingham – Birmingham – United Kingdom.

PhD Student in Political Economics – Catholic University of the Sacred Heart – Milan – Italy.



Eliana Lauretta presented a paper entitled “Finance and Growth: Understanding the Switch from “Virtuous” to “Bad” Cycles in the Finance-Growth Relationship” in the WEHIA 2013 international workshop this year organized in Reykjavik by WEHIA-COST PhD School and the Reykjavik University, Iceland. The aim of the conference was to explore various aspects of the economy as a complex system made up of multiple heterogeneous interacting agents, which combine to increase systemic risk, and share knowledge on ways to mitigate this structural risk and to derive policy proposals. Read more »

2nd Philosophers’ Workshop – Report

2nd FinCris Philosophers’ Workshop

22nd / 23rd June 2013, Scarman House, University of Warwick


Tom Sorell, James Dempsey, Peter French (by Skype), David Silver, Nick  O’Donovan, Lena Rethel, Chris Cowton, Seumas Miller, Mark Hannam, Tim Fowler, Sajid Chaudhry, Antony Elliot, John Guelke, Leslie Sherratt.


This workshop followed on from the 1st workshop that we ran in November 2012. The aims were very similar – to discuss how theoretical accounts of responsibility can be applied to the financial crisis, and to do so in light of the progress made in November. In particular, to continue the themes developed Read more »

New Paper by Andy Mullineux – Banking for the Public Good

Follow this link for the latest draft of a new paper written by Andy Mullineux on ‘Banking for the Public Good’.


Bank shareholders cannot be expected to provide good stewardship to banks because there is a conflict of interests between the shareholder owners and a non-mutually owned bank’s depositors; who provide the bulk of the funds in traditional retail banks and are willing to accept a lower return on their savings than shareholders, in return for lower risk exposure.  Regulation is required to Read more »