So Sir James Crosby, erstwhile career banker and chief fox in charge of the UK banking hen house did the decent thing and skewered himself on his own Montblanc. While we have only heard one side of the story, my own brief experience in banking would tend to support his accuser. At LexisNexis, while the US operation already had a huge public record-based risk management arm, I encouraged the European operation to move into the compliance data and solutions market, specifically anti-money laundering / client acceptance. It was only really the prospect of a prison stretch (the Riggs Bank farrago saw to this) that motivated senior management at the banks to demand more assiduous checking of their clients – and the reality is fear can be very powerful purchase driver.
Had the same penalty been in place for lax banking risk management, would we be in this position today? The Basel II Accord and it’s recommendations on capital adequacy were much trumpeted in 2004 as the framework for effective risk management – and little has been heard of it since. So why did Basel fail us so spectacularly? My two cents is that too much was left in the hands of local regulators to a. ‘customise’ their model to suit the local market and b. to apply it according to their own timeframe – a classic fudge.