membership organisation of social, sustainability and environmental
bodies such as Greenpeace, Friends of the Earth and WWF, whose aim
is to monitor the business practices of the world’s banking
industry – has published its thoughts on the banking crisis and the
steps and reforms both the industry and regulators now have to
take, in its view, to put the market back on its
feet.
Should the financial services industry take serious note of what
people and institutions like BankTrack say?
Go deeper with GlobalData
As ethical and environmental issues become ever more prevalent,
a very broad mixture of views from different corners and
stakeholders will be inevitable given the scale of the current
crisis and its effect on the world economy.
Focusing on the ethical future
BankTrack’s primary focus is on project finance, and funding for
big construction projects that, in its view, do not fit
environmental or social parameters, but its statement on the
banking crisis is focused on all aspects of banking, including
retail.
The organisation certainly does not pull its punches, writing
that “irresponsible and unsustainable behaviour of banks, driven by
greed and kept unchecked by a failing regulatory system, has been
at the core of the crisis.”
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By GlobalDataIt adds: “The crisis has demonstrated that self-regulation is no
regulation. Governments have taken a hands-off approach to the
sector allowing risky activities to go unregulated.
“Weak regulations led to the creation of the massive ‘shadow
banking system’, which was largely responsible for the expansion of
unregulated, exotic securitised products and credit
derivatives.”
A way to change
The organisation lists the following broad set of
recommendations:
• Get banks out of politics: decrease the political influence of
banks;
• Require banks to seek a social license to operate: society
must regain the means to control and correct banks, and redefine
banks’ primary role as investing in the real economy;
• Serving the public interest: banks, particularly those that
have been bailed out with public money, have an important role to
play in economic transformation. It must be a role based on serving
the public interest, rather than safeguarding the profits of the
few;
• A sustainable Basel Capital Accord: introduce a set of
sustainability criteria into the Basel Capital Accords capital
adequacy ratios;
• Transparency: banks should be completely transparent about
their risk assessment processes, decision-making procedures,
(corporate) clients and transactions. Such transparency is already
best practice among some ethical banks;
• Eliminate the shadow banking system by regulating all
unregulated financiers and financial products. Some financial
practices simply should be forbidden. It does not make sense to
establish regulatory frameworks and reporting standards, while at
the same time allowing financiers to circumvent them through
off-the-book transactions;
• Abolish tax havens: secrecy jurisdictions are established not
only to allow companies, financiers and individuals to evade taxes
but to avoid regulations as well;
• Regulate alternative investors such as hedge funds and private
equity funds, and introduce significant new transparency and
reporting requirements;
• Limit leverage: the crisis has made clear that extraordinarily
high returns often are often linked to an excessive amount of
borrowed money and/or temporary wealth associated with inflating
bubbles;
• Curb derivatives: derivatives should be checked for their
long-term impacts and whether they serve a legitimate hedging
purpose (for example, help producers to anticipate and adapt to
price fluctuations). Only legitimate hedging instruments should be
allowed, and they should be standardised and traded in regulated
exchanges; and
• Reduce incentives for excessive risk taking: banks’ incentive
structures – like stock-options and short-term, volume-oriented
bonuses – stimulated excessive risk taking.
Current construction and energy projects being monitored by
BankTrack include the Ilisu Dam project in Turkey, the Sakhalin II
oil and gas project in Russia, oil sands production in Canada and
so called ‘mountain top removal’ coal mining in the US.
