Bank regulation is difficult says author Ellis

By Simon Hayes on November 3, 2009 9:26 AM |

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The fallout from the banking crisis has thrown the industry's problems into stark relief, not least regulation.

The British Government has vowed to crack down on the return of excessive bonuses and risky practices that precipitated the credit crunch, but implementing tighter unilateral regulation could be difficult.

For American Charles D Ellis, author of the definitive history of investment bank Goldman Sachs, the answer lies in international co-operation.

He said: "It's no longer possible to regulate banks on a national level. That's not possible in any financial sector apart from retail.

"Banking is a global business so you have to regulate it globally. It will be very difficult but it can be done. Human nature always finds a way to deal with a problem.

"Look at NATO, look at the Common Market. The European Union is made up of countries who fought each other twice less than 20 years before and now look at how successful it is. That's what banking regulation needs."

But what about the fears that banks will simply up sticks and relocate to somewhere that falls outside the regulatory regime? It won't happen, according to Mr Ellis.

He said: "I don't see a rogue state emerging. The great nations have the culture, the living standards, the legal system and the confidence in the rule of law you don't find everywhere so they are still hugely attractive.

"Anyone trying to take advantage by moving elsewhere would soon find the powers-that-be coming down hard on them, so I don't think it will happen."

Mr Ellis, 72, has updated his book on Goldman Sachs, originally published last year, to reflect the changes in the world of international finance. Goldman hit the headlines recently when it revealed it will be paying out billions in bonuses to staff, something that goes against the grain with the public.

But Mr Ellis believes they are justified.

He said: "Goldman Sachs and JP Morgan were the only institutions who looked at the turbulent period last year and went out and made markets. Everyone else was holding back.

"Thank God they did go out and make the markets because if they hadn't things would have gone even further down. Those banks created the wealth so they have earned the rewards.

"It's not about whether they deserve it, who can say if they are worth it, but they earned it through their skill and hard work."

The Partnership: The Making of Goldman Sachs is published by Penguin, priced £10.99.