47 John Kay Quotes on Other People's Money: The Real Business of Finance, The Hare and Tortoise and Other People's Money: The Real Business of Finance - Quotes.pub

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The payments system is the heart of the financial services industry, and most people who work in banking are engaged in servicing payments. But this activity commands both low priority and low prestige within the industry. Competition between firms generally promotes innovation and change, but a bank can gain very little competitive advantage by improving its payment systems, since the customer experience is the result more of the efficiency of the system as a whole than of the efficiency of any individual bank. Incentives to speed payments are weak. Incrementally developed over several decades, the internal systems of most banks creak: it is easier, and implies less chance of short-term disruption, to add bits to what already exists than to engage in basic redesign. The interests of the leaders of the industry have been elsewhere, and banks have tended to see new technology as a means of reducing costs rather than as an opportunity to serve consumer needs more effectively. Although the USA is a global centre for financial innovation in wholesale financial markets, it is a laggard in innovation in retail banking, and while Britain scores higher, it does not score much higher. Martin Taylor, former chief executive of Barclays (who resigned in 1998, when he could not stop the rise of the trading culture at the bank), described the state of payment systems in this way: ‘the systems architecture at the typical big bank, especially if it has grown through merger and acquisition, has departed from the Palladian villa envisaged by its original designers and morphed into a gothic house of horrors, full of turrets, broken glass and uneven paving.’6
Jed Rakoff, for many years Federal judge for the South District of New York, which covers Wall Street, has delivered a blistering and well-argued attack on SEC’s policy of negotiating fines with corporations, of which the settlement with Goldman was an example: Just going after the company is also both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.13 The Wall Street Journal has estimated that in 2012 and 2013 J.P. Morgan paid over $25 billion to settle charges against it—generally without admission of liability.14 Senior executives of J.P. Morgan are willing to hand over these astonishing sums to atone for past wrongdoing because they pay with other people’s money. The scale of announced fines gives the appearance of severity. But not the reality. It is telling that the reputation of J.P. Morgan—once and perhaps still the most respected of financial services firms—is now such as to be only slightly tarnished by restitution of $25 billion. Rakoff argues that ‘the future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing’.15