“Everyone in a firm needs to see that executives and board members live up to what they say they are trying to do. Actions speak louder than words.” This was Colette Bowe, chair of the Banking Standards Board, an industry organisation established in Britain in 2015 on the recommendation of a parliamentary commission. Its aim is to raise standards of behaviour and competence across the banking sector. Dame Colette was introducing the standards board’s annual review on Tuesday, the same day that Charlotte Hogg resigned from the Bank of England after parliament’s Treasury select committee withdrew its endorsement of her promotion to deputy governor.
Ms Hogg’s error in failing to disclose a close family connection with an executive at Barclays, one of the banks she would be supervising in her role, looks careless but no more than that. She had many opportunities to disclose the relationship and should have checked that she had done so, given that she was responsible for the bank’s code of conduct, but she was not seeking personal advantage for herself or her relative. Her judgment and tone in attempting to pass off the conflict of interest on the grounds that she did not discuss business with her family is more damaging, but she is apparently an able individual who got something wrong and has paid a heavy price. By resigning, she has done the right thing and her situation ceases to be a matter for the public interest.
The same is not true of the BoE. It won back responsibility for regulating financial institutions in 2010 after the ill-defined “tripartite arrangements” with the Treasury and the Financial Services Authority were discredited during the banking crisis. Robust supervision and clarity of reporting lines would replace light-touch regulation, and so it has been until this week.
A consequence of disciplined regulation, as the BSB notes in its report, has been a raising of standards of behaviour at many banks. The firm hands of the Financial Conduct Authority and the Prudential Regulation Authority, the BoE organisation responsible for supervision and regulation, have left banks in no doubt that they are now being held to higher account.
But the credibility of these regulators relies on their own pristine reputation and that of their sponsor. The BoE cannot judge others by one set of standards yet treat itself more leniently; to do so invites the institutions it supervises to game the rules. Ms Hogg’s error became public on March 3 but the bank knew about it some days earlier. It should have been immediately obvious, as it was to many outside observers, that she would have to stand down. According to reports, her first resignation was declined by Mark Carney, BoE governor, until she finally insisted on leaving a few days later. Related article Charlotte Hogg’s BoE departure fuels gender diversity debate Dearth of women at senior level and loss of deputy suggests a bank in urgent need of modernisation
Protecting Ms Hogg looks like a lapse of judgment on Mr Carney’s part. Five years ago his predecessor, Mervyn King, stepped in to force the resignation of Barclays’ then chief executive Bob Diamond, believing the high street bank’s board to be halfhearted in its response to the Libor scandal. It was harsh treatment and harsher than that meted out to other banks involved in the same scandal but it sent a very clear message to Barclays and the rest of the sector.
In appearing to go soft on one of his own, the present governor has also given a message — one that should not be offered to a sector still trying to find its moral compass. Mr Carney has been a strong and effective governor but this is no time to let up. In endorsing Dame Colette’s report, he said: “Whilst firms are responsible for managing their culture, behaviour and competence, Banking Standards Board membership provides the impartial challenge, support and assessment needed to do this well. I support this.” He is right and so is Dame Colette: actions do indeed speak louder than words, especially when they come from the top of the tree.