HSBC chief admits that complexity exposed bank to problems

Over shadowed by RBS reaching a settlement  for its role in manipulating Libor was that admission by HSBC's chief that complexity exposed the bank to problems.

As reported by the Telegraph,

Stuart Gulliver said HSBC's structure "was not fit for purpose for a modern world"....

Please reread the highlighted text as Mr. Gulliver has nicely made the case for why banks must be required to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposure details.

With this disclosure, it is easy for market participants to see just how complex the banks are and, as a result, exert discipline on bank management to make their organizations much less complex.

"To be honest, our geographic footprint became very attractive to trans-national criminal organisations, whether they are terrorist in origin or criminal in origin," he added, responding to questions from the parliamentary commission on banking standards on Tuesday....

As shown by the ongoing Libor benchmark interest rate manipulation scandal and the mis-selling of insurance and interest rate derivatives scandals, criminal activity also existed inside the bank.

What allowed this type of activity to flourish is opacity.

HSBC and the other banks are currently, as the Bank of England's Andrew Haldane says, a 'black box'.   It is this opacity that hid the complexity the Mr. Gulliver says was a major factor in money laundering.

HSBC Chairman Douglas Flint said the bank was too slow to improve its systems and controls. 

"There were things we were not aware of, and standards we believed were being applied that were not," Mr Flint said. 

While admitting past fault, the pair insisted the bank is no longer out of their control. 

"I do not believe this bank is too big to manage or too big to control [any more]," said Mr Gulliver. 

"We have re-organised HSBC. We have implemented the highest standards, which are the US standards, everywhere in the world."

With ultra transparency, it is not a question of whether Mr. Gulliver thinks HSBC is too big to manage or too big to control, it is a question of what the market thinks.