Investing in Change: The Reform of Europe's Financial Markets

By Andrew Gowers

These are tumultuous times for the banking industry in Europe. The financial crisis that erupted in 2008 has rarely been out of the headlines since.

Yet this has not been solely a period of crisis management. It has also been a time of positive change and reform, involving self-examination by the banks; tough scrutiny by governments, regulators and the public; and a general determination to ensure that this crisis never happens again.

This book seeks to explain what has been going on. Commissioned by the Association for Financial Markets in Europe, it is a collection of essays by some of the leading authorities in the field - senior regulators, specialists on pay and management, corporate CEOs and political and academic experts - about the reshaping of Europe's banking sector.

What has changed, and what still has to change? What has gone wrong, and how is it being put right? What are the challenges ahead for this vital industry and those who oversee it? The debate continues, and this volume is an essential contribution.

• Language: English
• Publisher: Profile Books
• Release date: Feb 2, 2012
• ISBN: 9781847658609

Andrew Gowers

Andrew Gowers is strategic communications consultant to AFME and a former Editor of the Financial Times.

Book preview

Investing in Change

Investing in Change

The reform of Europe’s financial markets

EDITED BY ANDREW GOWERS

FOREWORD BY GAËL DE BOISSARD

HANS-PAUL BÜRKNER, HUGO DIXON,

TOM GOSLING, SIMON LEWIS, ALAN MORRISON,

AVINASH PERSAUD, MARTIN SORRELL,

PAUL TUCKER, SHRITI VADERA,

WILLIAM WILHELM, EDDY WYMEERSCH,

RUPERT YOUNGER

First published in Great Britain in 2012 by

The Association for Financial Markets in Europe (AFME)

St Michael’s House

1 George Yard

London EC3V 9DH

in association with Profile Books Ltd

Copyright © AFME 2012

Text copyright © Foreword: Gaël de Boissard; Introduction: Simon Lewis;

Chapter 1: Paul Tucker; Chapter 2: Shriti Vadera; Chapter 3: Eddy Wymeersch;

Chapter 4: Tom Gosling; Chapter 5: Martin Sorrell; Chapter 6:

Hans-Paul Bürkner; Chapter 7: Avinash Persaud; Chapter 8: Alan Morrison,

William Wilhelm, Rupert Younger; Chapter 9: Hugo Dixon

Chapter 6 adapted and updated from ‘Crisis as Opportunity’, a report on

the global corporate banking industry by The Boston Consulting Group.

The moral right of the authors has been asserted.

All rights reserved. Without limiting the rights under copyright reserved

above, no part of this publication may be reproduced, stored or introduced

into a retrieval system, or transmitted, in any form or by any means

(electronic, mechanical, photocopying, recording or otherwise), without the

prior written permission of both the copyright owner and the publisher of

this book.

A CIP catalogue record for this book is available from the British Library.

ISBN 978 1 78125 013 6

Text design by Geoff Green

Typeset in Swift by MacGuru Ltd

[e-mail]

Printed and bound in Great Britain by

CPI Bookmarque, Croydon, Surrey

Contents

The authors

List of figures

Foreword: GAËL DE BOISSARD

Introduction: SIMON LEWIS

1 Banking in a market economy – the international agenda: PAUL TUCKER

2 Where the G20 process went right and wrong: SHRITI VADERA

3 Risk in financial institutions — is it managed?: EDDY WYMEERSCH

4 The impact of regulation on remuneration: TOM GOSLING

5 A client’s view: SIR MARTIN SORRELL

6 Megatrends shaping the corporate banking landscape — a European outlook: HANS-PAUL BÜRKNER

7 In defence of the indefensible: financial innovation and complex financial instruments: AVINASH PERSAUD

8 Reputation in financial markets: ALAN MORRISON, WILLIAM WILHELM, RUPERT YOUNGER

9 Nostra culpa: HUGO DIXON

Notes

About AFME

The authors

Gaël de Boissard is chairman of the Association for Financial Markets in Europe and a managing director at Credit Suisse in the investment banking division, based in London. He is co-head of global securities, a member of the investment bank management committee and chair of the fixed income operating committee. Before that he held a variety of senior roles within fixed income including head of global rates and foreign exchange, and head of global securities for Europe, the Middle East and Africa. He joined Credit Suisse First Boston in 2001 from J.P. Morgan, where he ran the European fixed income business and was a member of the European Management Committee. He joined J.P. Morgan’s Paris office in 1990 and held a number of trading positions in bonds, swaps, exotics and proprietary trading.

Hans-Paul Bürkner has been president and chief executive officer of the Boston Consulting Group (BCG) since 2003. He joined the firm in 1981 and was a member of the teams that opened the group’s Düsseldorf (1982) and Frankfurt (1991) offices. Before becoming BCG’s first European chief executive officer, he was head of the global financial institutions practice. During his 30 years at BCG, his clients have included many of the world’s leading financial institutions. He has worked with them to redefine the competitive landscapes in their segments, helped them to innovate their business models in their various business activities, and spearheaded major global expansion initiatives.

Hugo Dixon is the founder, editor-in-chief and chairman at Reuters Breakingviews, a leading international source of online financial commentary. Before founding Breakingviews, he spent 13 years at the Financial Times, the last five as head of Lex. He began his journalistic career at The Economist.

Tom Gosling is a partner at PricewaterhouseCoopers and leader of the firm’s UK reward practice, advising companies and remuneration committees on executive compensation. He has worked extensively with banks and regulators on the remuneration response to the financial crisis. Prior to joining PwC he was a research fellow in the Department of Applied Mathematics and Theoretical Physics at Cambridge University from 1994 to 1996.

Andrew Gowers, commissioning editor, is Strategic Communications Consultant to AFME and a former Editor of the Financial Times.

Simon Lewis was appointed chief executive of AFME in October 2010. Previously he was director of communications and the prime minister’s official spokesman at 10 Downing Street. He has held a number of senior corporate roles, including director of corporate affairs at Vodafone, Centrica and NatWest. He was appointed as the first communications secretary to the Queen in 1998. He is a visiting fellow at Oxford University and at Cardiff School of Journalism. He is also chairman of the Fulbright Commission and a member of the advisory board of the National Portrait Gallery.

Alan Morrison is a fellow of Merton College Oxford and lectures in economics and management at Oxford University’s Saïd Business School. His research interests lie mostly in the application of ideas from information economics to finance theory and to the economics of organisations. His research papers have covered subjects such as the interplay between moral hazard, adverse selection and optimal capital regulation for banks; risk-shifting effects in the presence of deposit insurance; credit derivatives; bank bail-out policy; financial panics and book-buildings in initial public offerings.

Avinash D. Persaud is chairman of Elara Capital, PBL and Intelligence Capital, and a board director of RBC Latin America & the Caribbean. Formerly, he was chairman of the Warwick Commission and the regulatory subcommittee of the UN High Level Task Force on Financial Reform; co-chair of the OECD’s EmNet (Emerging Markets Network); and a member of the UK Treasury’s Audit Committee, the intergovernmental task force on financial taxes and the Pew Task Force to the US Senate Banking Committee. He was also president of the British Association for the Advancement of Science (Section F) and a governor of the London School of Economics. He is Emeritus Professor at Gresham College, a fellow of London Business School and visiting fellow, CFAP, Judge Institute, Cambridge University. He was ranked the world’s number two public intellectual on the financial crisis by an expert panel for Prospect Magazine.

Sir Martin Sorrell is founder and CEO of WPP. Under his leadership, the company has grown — by acquisition and organically — to become the world’s largest communications services group, with over 153,000 people (including associates) working across some 150 companies in 107 countries.WPP companies, which include some of the most eminent agencies in the business, provide clients with advertising; media investment management; information; insight and consultancy; public relations and public affairs; branding and identity; healthcare communications; direct, digital, promotion and relationship marketing and specialist communications. Leading operating companies include JWT, Ogilvy, Y&R, Grey, GroupM, Millward Brown, TNS, Burson-Marsteller, Hill & Knowlton, Landor, Wunderman, CommonHealth, Blue State Digital and 24/7 Real Media.

Paul Tucker is deputy governor, financial stability, at the Bank of England, a post he has held since March 2009. He is a member of the Monetary Policy Committee, the Financial Policy Committee and the bank’s Court of Directors. He also serves on the G20 Financial Stability Board’s steering committee. From June 2002 to March 2009, he was executive director for markets. From January 1999, he was deputy director, financial stability, and was closely involved with the bank’s Financial Stability Review. From May 1997 to June 2002, he was also on the secretariat of the Monetary Policy Committee, preparing the published minutes. He was head of the monetary assessment and strategy division, 1997 — 98, and principal private secretary to governor Robin Leigh-Pemberton for three and a half years until 1993, when he moved to the domestic market operations area. Before that he worked as a banking supervisor, a corporate financier at a merchant bank and on projects to reform the Hong Kong securities markets and regulatory system following the 1987 crash.

Baroness Shriti Vadera advises companies, funds and governments on strategy, finance and restructuring. During 2010 she advised the South Korean presidency of the G20 on formulating and negotiating policy outcomes for the G20 Seoul summit and the government of Dubai on the restructuring of Dubai World’s debt. She currently advises Temasek Holdings, Singapore, and Allied Irish Banks, and is a non-executive director of BHP Billiton and AstraZeneca. From June 2007 to September 2009 she was a minister in the UK government’s Cabinet Office and Departments for Business and International Development. She worked on the government’s response to the financial crisis, was a key architect of the UK bank recapitalisation plan, and devised and helped negotiate the outcomes of the April 2009 G20 London summit, which the IMF described as ‘breaking the fall in the global economy’. She was on HM Treasury’s Council of Economic Advisers from 1999 to 2007, working on business and international economic and finance issues. Before that she was an investment banker for 14 years with SG Warburg/UBS focusing on emerging markets.

William J. Wilhelm Jr is William G. Shenkir Eminent Scholar at the University of Virginia’s McIntire School of Commerce. He is an investment banking specialist whose teaching interests include corporate finance and financial engineering. His research focuses on the investment banking industry, and his work has been published in many journals, including The American Economic Review, Journal of Financial Economics, Journal of Money, Credit, and Banking and Oxford Review of Economic Policy. In his book Information Markets (Harvard Business School Press, 2001), he explains how advances in IT are transforming financial markets. His latest book, Investment Banking: Institutions, Politics, and Law (Oxford University Press, 2007), is an economic history of the investment banking industry. Before joining McIntire, he held the American Standard Companies Chair in Management Studies at Saïd Business School, University of Oxford; he has also has held visiting appointments at the Institut d’Economie Industrielle (IDEI) in Toulouse, France, and at the Federal Home Loan Mortgage Corporation. He has worked as a consultant for the Resolution Trust Corporation, Dresdner Securities, London Economics and Oxford Economic Research Associates.

Eddy Wymeersch is chairman of the Public Interest Oversight Board, overseeing standard-setting in the field of auditing. He is a member of the board of FINMA in Berne and of the Qatar Financial Regulatory Authority. He has been chairman of the Committee of European Securities Regulators (CESR; February 2007 — July 2010) and of the European Regional Committee of IOSCO, in that capacity also taking part in the executive and the technical committee (2006 — 10). He was chief executive (2001 — 07) and chairman of the supervisory board (2007–10) of the Belgian Commission Bancaire, Financière et des Assurances (CBFA). Before joining the CBFA, he held public posts in Belgium, including ‘regent’ of the National Bank of Belgium and member of the legislative branch of the Council of State. He has served on the boards of several Belgian companies and was chairman of Brussels airport. He has been an academic at Ghent Law School, where he founded the Financial Law Institute, and has served on several committees advising the Belgian government. He has acted as an adviser to the European Commission and several European financial institutions and stock exchanges, and a consultant to the World Bank and IFC. He has published extensively on company law, corporate governance and financial regulation and is a member of the European Corporate Governance Forum.

Rupert Younger is the founder director of the Oxford University Centre for Corporate Reputation based at Oxford University’s Saïd Business School. Established in 2008, the centre undertakes research and teaching on how corporations and institutions create, sustain, destroy and rebuild reputation. He is also a co-founder of the Finsbury Group, a financial communications group with offices in London, New York and Brussels, and remains a consulting partner. He has 20 years’ experience in financial communications, working with big UK and international companies on their