While recently discussing Martin Wolf's latest book "The Shifts and the Shocks" at a LSE public lecture, Lord Turner, chairman of the FSA, posed the pressing question: How radical do we need to be to have a safer financial system?
A few years ago, it would have been almost inconceivable to predict that the conduct costs incurred by the ten leading banks over a five-year period to the end of 2013 would be just shy of £160 billion. There is no doubt that conduct costs represent a significant threat to a safer financial system. Professor Roger McCormick and Chris Stears aptly commented on this issue:
"Rising conduct costs will increase a bank’s overall operational risk profile and, consequently, its regulatory capital requirements. The 'operational risk charge', which will take account of conduct risk, takes the management of legal risk from what was perhaps considered in the past to be a 'soft issue' for financial services firms, firmly onto a quantitative, bottom-line basis".
Restoring public trust in a new financial order, by Calvin Benedict