Paul Flowers: A Sign Of The Financial Times

Public regulators have no place policing private morals

By Jonathan Guthrie

The scandal surrounding Co-op Bank’s ex-chairman Paul Flowers has triggered an inquiry to establish what the blue blazes City watchdogs were playing at. Surely the Financial Services Authority should have known that the Methodist minister was allegedly buying drugs, sleeping with rent boys and stashing gay porn on his computer at Bradford City Council?

Wrong. Watchdogs have no duty to expose naughty vicars. Her Majesty’s red tops enjoy that historic prerogative.

Questions of financial competence are eliding queasily with issues of personal morality. This gives policy commentators an angle on a juicy story. The link word is “judgment”. Risk-taking by Rev Flowers is cited as proof of institutional recklessness by a board light on banking expertise.

It is true that public figures should avoid relationships with prostitutes. Their loyalty is contingent on cash payments, apparently. That aside, the judgment-based argument is weak. When the Rabelaisian rev exposed his ignorance of Co-op Bank metrics to MPs, it provoked media tutting rather than howls of indignation. These only ensued after a drugs-buying jaunt was exposed in the Mail on Sunday.

The Rev Flowers’ taste for illegal pharmaceuticals is the sole element of his misbehaviour relevant to his chairmanship of Co-op Bank. It is reasonable to assume he might not have told the FSA about this at his interview to become a non-executive director in 2009.

The regulator was aware he knew little about banking but nodded through his appointment as chairman in 2010 on the condition a banker and an insurance expert were made directors too. That was an error. Chairmanship is important enough for candidates to get a second in-depth grilling from regulators.

But back then, non-bankers were seen as an asset on bank boards. Sensibly so. The financial crisis was precipitated by the errors of career money men.

Following the meltdown, the government was keen to promote challenger banks. That was easier than unpicking Lloyds’ rescue of Halifax Bank of Scotland in 2009, which tightened the UK’s retail banking oligopoly. George Osborne’s partiality was reflected in his efforts to wring cushy capital standards for Co-op Bank from Europe.

The subsequent discovery of a £1.5bn capital deficit is evidence of regulatory virility rather than the reverse. Watchdogs started putting pressure on the bank in 2011. This culminated in the Prudential Regulation Authority announcing in June that Co-op Bank was on track to undershoot a 7 per cent target for core tier one equity. As a result, the Co-op Group is set to lose control of the lender, as befits an incompetent owner. But the bank is unlikely to fail and the recapitalisation should require no public funds.

Royal Bank of Scotland also fell short of PRA capital targets in June but without a partying padre to give the story legs.

Financial Times.

Thought I'd reprint this in full, as it's behind the FT paywall, but moreover because it's a rare voice of reason amid the din of the media's screeching witch hunt.

And perhaps - just possibly - the Financial Times actually know what they're talking about here?

PS Handy BBC News Timeline: Flowers, Labour and the Co-op. Think they may have got an intern to do this. 

Ask your average political nerd to guess Noam Chomsky’s favourite newspaper and few would tender the Financial Times. But the emeritus professor of linguistics and philosophy at MIT, revered the world over by left-wing intellectuals and social activists, believes the pink ‘un is the only global newspaper “that tells the truth”.

“My impression in general is that the business press is more open, more free, often more critical, less constrained by external power and external influences,” he tells beyondbrics...

“Those who Adam Smith called ‘the masters of the universe’ have to understand the universe. They have to have a tolerably realistic understanding of the world that they are managing and controlling. That’s true of political elites as well, but the business world particularly. Also, the business press essentially trust their audience. They don’t have to impose propagandistic illusions to keep the rabble under control.”

FT.com interview, February 2013.

Update: And here comes American Conservative on Uncle Noam, American Anarchist. Bit studenty.

And then... There's Always A Class War Going On, Counterpunch/Occupy interview. Ta Phil.