Subject: Banking Supervision and Regulation
Chairman: Well banks are clearly one of the most regulated sectors of business, light reign or not and the regulations are ostensibly to promote sensible behaviour in the market, or to head off harmful, or over risky behaviour in the market. To what extent are banks strategies shaped by those regulations? Or are the regulations viewed more as hurdles to be circumvented, or got over as required?
And specifically do you think that better or more astute bank regulation and provision could have headed off the current financial crisis? Perhaps I can start with Mr Flint from HSBC on that one?
Mr Douglas Flint, Group Finance Director HSBC: Surely, I don't agree that banks strategies are shaped by regulation. I believe that banks strategies are shaped by the economic environment and the needs of customers, but I think that the frame work with which the sources are provided, are governed by the governance of our own institutions and by the regulatory frameworks in which we serve customers around the world.
We ourselves respond to over 500 regulators so, to have strategies shared by 500 different regulatory systems would be a challenge. So the strategies are economically focused and the regulators provide a backdrop to how we apply those strategies in practice. I think that it is simplistic to think that there is a silver bullet of better regulation of supervision that could have prevented the current financial crisis, because I think a large number of the contributory inputs to the current crisis were macro-economic in terms of excess liquidity, low interest rates and a search for yield over a number of years.
However, having said that, I think there are elements of fragmented regulation that are now being addressed, I think there were elements of lack of transparency as to where the end risk in the broadest definition of the financial system resided. There were areas where the framework did not capture all of those elements. I think the number and the type of entities that were captured in the way that they were regulated around the world was not consistent, and again I think that is an area that contributed to elements of regulatory overlap, and regulatory under scrutiny of certain activities in certain parts of the world.
And I think that one of the areas where a lot of attention is now being given and talked about, is there was perhaps not a framework regionally and probably, more importantly, globally, that looked at the possible areas of systemic risk that were emerging from the combination of macro-economic events and the way the financial framework was evolving.
The way the regulatory framework was evolving, the interplay with accounting and other rules and simply the behaviours of market participants. Putting all that together in a way that would sit into a framework that would added other systemic implications from all of these contributory factors was something that didn't exist, and I suspect a lot of attention will be focused on that in the coming months and years.