For example, would bankers still have manipulated the Libor interest rate if market participants could see all the Libor-based trades (both funding and off-balance sheet) that the bank was involved in?
For example, would bankers still have been able to sell the same volume of sub-prime mortgage backed securities and related derivatives if the securities had to provide observable event based reporting with disclosure of all non-borrower privacy protected data fields tracked by originators and servicers?
Regular readers know that the answer to these and related question is no as the sunlight provided by transparency is the best disinfectant.
Sir David Walker, the chairman of the board for Barclays, made one of these banker compensation claims when he told Parliament that the way to change banking culture is to change how bankers are paid.
Maybe. Far more effective at changing banker culture is to require ultra transparency and require the banks to disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.
By requiring ultra transparency, regulators instill in banks a culture of anything they do today will be known by the market tomorrow. This culture has a very strong incentive to engage in exemplary behavior.
According to a Telegraph article,
Sir David Walker, the chairman designate of Barclays, has blamed the way banks pay their staff for the problems of the industry and said he favoured new rules which would give far more detail on how much bankers are paid.
Speaking at the first public hearing of a parliamentary commission into banks, Sir David investment bankers focus on short-term targets had been “hugely damaging”.
“The problem that I think has been most serious is not so much levels of remuneration, but the gearing of remuneration to revenue.” said Sir David.
He added: “The inappropriate incentivisation is accountable for a lot of what has gone wrong.”...
Sir David added that shareholders were also "an important part of the problem" and should share the blame for some of the industry's problems. "They encouraged banks to lever up," he said.Actually, given the level of opacity in bank reporting, banks are 'black boxes' according to the Bank of England's Andrew Haldane, the shareholders were not part of the problem. Shareholders lacked the information they needed to exert market discipline on bankers' bad behavior.