Business

Wednesday April 8, 2009

The hammer has fallen on easy money


THE plans, as revealed by the Financial Stability Forum of leading central bankers and regulators to tighten banking regulations, appear basic in essence. Everything seems to have come a little too late.

A lot of it looks like common sense and so what still stuns the world is how the system managed to grow so big that it had run away from the basics.

Maybe it is a case of too many cooks spoiling the broth. In this case, too many crooks have upset the ricebowl of the genuine and honest. And we need a gathering of world leaders to curb basic human behaviour.

Capital requirements would involve measures to control bank leverage and set a floor for minimum capital. Provisions for buffers and new principles for stress testing banks are also emphasised.

Remuneration policies received a great deal of attention with incentives such as bonuses to be viewed alongside long term profitability and risk profile.

It appears that finally, someone has woken to his senses to question the sustainability of profits and the inherent risks in maintaining high profits, year after year.

It looks like the hammer has fallen on easy money.

Compensation schemes are to be actively reviewed by directors and disclosure that is “clear, comprehensive and timely’’ is required.

If one goes strictly by these plans, gone will be the days when directors themselves pocket the huge payouts. This time, they would have to be accountable themselves.

It is strange that after so much has happened, the world’s financial leaders are only now asking accountants to look into speedier responses to provide for loan losses.

High level cross border monitoring includes yearly meetings and face-to-face with an international college of supervisors. The buzzword here is to get prepared prior to any crisis.

The overall tone of these plans is largely reactive, not so much pre-emptive. It is no use crying over spilled milk but are there any potential areas of disaster that should be addressed pre-emptively?

With a lot more job losses in the horizon, what exactly is being done to avert such a situation? We don’t hear of world leaders setting up a high level council on jobs.

With increased mobility and globalisation, international job placements and assistance should be available through a strong co-ordinating body, not just individual head hunters, job agencies and online search engines.

We should not wait until people are on the streets and then react by setting a college of advisors on employment. There is also a lot of money involved in job losses and therefore, the issue warrants our serious attention.

We should not just leave the matter with the companies or governments concerned as they may have too many other priorities. Employment is a universal thing and the best jobs aren’t always the ones just before us.

·Senior business editor Yap Leng Kuen observes there are countries that put in a huge effort to set up pre-emptive mechanisms. Their emphasis is on maintaining public trust and confidence and preventing further deterioration of the situation. However, this pre-emptive mode of behaviour has to spread across the globe and other sectors, not just financial services. All are, in the final analysis, intertwined and therefore require supporting mechanisms.

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