Banking Law and Financial Regulations

Evaluating the financial accounts of the Royal Bank of Scotland Group, Barclays, HSBC, and Standard Chartered Bank from 2004 – 2018 reveals a taste of the sweetness of success. It also demonstrates what could go wrong in a mega bank, the crippling price of failure, and the long hard road to recovery.

This book is a historical account of the causes of instability in the banking sector in the past 40 years and an evaluation of the effectiveness or otherwise of a range of laws and regulatory measures adopted to remedy financial crises in the UK over the years.

In addition, the book provides a broad review of the evolutionary development of banking and financial laws starting with seminal case laws on the subject, the Banking Act 1979, the repealed Banking Act 1987, FSMA 2000, the Company Act 2006, the Banking Reform Act 2013, Basel Accords and sundry EU Directives.

John, a Barrister at Law offered a robust blend of theoretical knowledge and twenty years of practical industry experience in a commercial bank to provide legal perspectives on supervisory models necessary for stability in the banking sector, while promoting justification for creating an enabling environment for wealth creation and economic growth.

The Methods and Methodology chapter would be an invaluable companion for postgraduate students and researchers.

About the Author

Dr John Abolarin is a seasoned chartered banker, management expert, academic researcher and a Barrister at Law, in England and Wales. He has about 40 years of experience in all four distinctive professional disciplines. His robust blend of theoretical knowledge and twenty years of practical industry experience in a commercial bank gave him a bird’s eye view of the endemic problems in the banking sector, which he evaluated with a depth of insight.

Among other suggestions, John argued that whilst regulatory reforms are sine qua non to safeguarding the economy, maintaining stability in the banking sector begins with empowering banks’ internal auditors and compliance officers who should have unfettered access to the bank’s Chief Executive Officer when needed. In addition, John argued that headhunting for the right people to manage the affairs of a vast multinational banking corporation and a succession plan are crucial success factors that have the potential to make or break a banking group.

John argues that while capital adequacy and liquidity ratios are essential, maintaining bank stability goes far beyond satisfying those requirements.

For example, the collapse of a 200-year-old investment bank, Barings Capital in 1995 and the narrow escape of Union Bank of Switzerland (UBS) from a major catastrophe in 2011perfectly illustrates how business operations in a bank could rapidly spiral downward leading to the ruin of a bank if not nipped in the bud quickly enough.

In the case of Barings Capital, unauthorised derivative offshore trading in Singapore by an unsupervised staff led to an accumulated deficit of £208 million over time, but in just two months, it escalated to £830 million. Inevitably, the bank collapsed.

Out of a potential loss of $12 billion, UBS managed to escape with a staggering loss of $2.3 billion. The losses were incurred through unauthorised trading of an unsupervised staff whose web of elaborate concealments remained undetected for three years. Later investigations revealed that he acted alone. No one suspected foul play throughout the three years until the staff owned up to the wrongdoing.

Giving powers to an individual to commit a bank to an exposure of up to $100 million while unsupervised as was the case of the staff involved in the UBS should give real concerns to supervisory institutions and the public.

Suggesting that such failures could happen in the banking sector may sound fictional, but it truly happened.

John’s point is that maintaining stability in the banking sector should take a holistic approach. A bank with a strong capital base and adequate liquidity ratios could run aground easily where there is room for what happened in Barings Capital and Union Bank of Switzerland.