The Politics of Financial Risk, Audit and Regulation

Contemporary economics and finance theory dominates the study and practice of banking. However, it is very weak in areas like culture, ethics and politics, factors which have a major influence. It assumes that a focus on profit and value maximisation will somehow lead to the best outcomes for society, and completely ignores the political power and influence of large banks, and the degree of responsibility required for the trust endowed upon them by society. If management were incompetent, who allowed them to be so, and why did no-one squeal earlier? What happens when someone does squeal, as in the case of HBOS whistle-blower Paul Moore who warned of excessive risk taking and an aggressive sales culture as early as 2004? How and why did auditors and regulators fail in giving early warnings? Why did the competitive stock market, assumed to be perfect and efficient, not spot the management failures much earlier?

This book investigates the above, in depth, and comes up with some surprising evidence and analysis, which exposes the need for curbing the political power of these large financial institutions. It details the processes and degrees to which challenge and regulation is undermined by this power, and what this means for the future governance of banking in Britain and globally. It exposes a pro-active process of regulatory risk management by these institutions, and the ease with which auditors and regulators can be and were captured. Shareholders and investors were happy to hop on the stock market ride and the spin issued by the management, not bothered to probe deeply into the underlying performance and results.