:00:05. > :00:15.dramatically. Those are the headlines. Now it is
:00:15. > :00:23.
:00:23. > :00:28.The UK appointed a commission to recommend it making banking reform.
:00:28. > :00:34.This should help to prevent future bail-out by the taxpayers. My guess
:00:34. > :00:40.today is Bill Winters. He sat on a commission and is also one of
:00:40. > :00:50.London's best-known financiers. Can the greed of the bankers be stopped
:00:50. > :00:50.
:00:50. > :01:39.Apology for the loss of subtitles for 48 seconds
:01:39. > :01:46.The most important thing that comes to my mind was whether it was
:01:46. > :01:50.earned. Many people tend not appreciate the contribution of any
:01:50. > :01:54.individual generating the kind of money the bankers are getting paid,
:01:54. > :02:03.including myself. You cannot imagine that you should be paid
:02:03. > :02:10.that much. Of course I can imagine it. The important thing is that
:02:10. > :02:18.this interest closely with the profitability of the bank. And
:02:18. > :02:28.other stakeholders. The head of the Independent high paid commission
:02:28. > :02:30.
:02:30. > :02:40.has said the UK levels have rose 50% in the past year. She said it
:02:40. > :02:40.
:02:40. > :02:43.is a bit of a myth, people are in a closed club. Companies are made up
:02:43. > :02:53.of executives from other companies with the interest of keeping pay
:02:53. > :02:54.
:02:54. > :03:02.higher. I never saw it as a closed club. I am not sure what she is
:03:02. > :03:11.referring to precisely. It is an end and -- international market.
:03:11. > :03:18.That is why the great attractions of Britain. It is a fabulous place
:03:18. > :03:26.to work. It is a wonderful environment. There is nothing club-
:03:27. > :03:32.like. She said closed clubs. If you're not sure she Seren, Planet
:03:32. > :03:40.Hollywood the Deputy Prime Minister is saying about the same topic.
:03:40. > :03:43.There is not enough accountability, he said. He said there is not a
:03:43. > :03:49.close enough relationship between the people at the top and the
:03:49. > :03:55.performance of the company itself. He is absolutely right. About
:03:55. > :04:00.shareholders not knowing what is being paid in a candid? It is clear
:04:00. > :04:07.that many banks paid out extraordinary bonuses to a large
:04:07. > :04:13.number of employees. It destroyed a lot of value for the shareholders.
:04:13. > :04:23.It also plans de-seed of economic destruction for the broader economy.
:04:23. > :04:23.
:04:23. > :04:28.There is no question about that assessment. You're given $12
:04:29. > :04:33.million after you left JP Morgan in 2009 and you are saying it is a
:04:33. > :04:42.perfectly acceptable sum. It is a fantastic a man of number. I do not
:04:42. > :04:47.actually say that. Do you think you are worth that? The important thing
:04:47. > :04:54.is that I did not get paid anything during the financial crisis. All
:04:54. > :05:00.the senior managers forewent their entitlements. That was because the
:05:00. > :05:07.firm was having a difficult time. We thought it was appropriate for
:05:07. > :05:11.all of us to recognise that clearly. The amount of money and received
:05:11. > :05:17.break before the crisis and for my departure was locked up for a long
:05:17. > :05:26.time. It was locked up in the JP Morgan's stock. If I performed
:05:26. > :05:34.badly, I would lose it. The key point I want to make is that people
:05:34. > :05:41.see bankers, like yourself, getting huge amounts of money. Another
:05:41. > :05:51.chief executive received a bonus of $10.5 million. The head of page SPC
:05:51. > :06:00.
:06:00. > :06:03.received a bonus around $14 million last year. -- his SPC. People start
:06:03. > :06:08.to think bankers are paying themselves millions of dollars. And
:06:08. > :06:13.people want to know why. The people that are paying the bankers are the
:06:13. > :06:22.banks. The banks are run by a board of directors. They do not earn that
:06:22. > :06:32.kind of money. The primary responsibility for setting this a
:06:32. > :06:36.proper levels resides with the owners of that bank. Shareholders
:06:36. > :06:42.are sometimes kept on the dark. Shame on them by allowing
:06:42. > :06:47.themselves to be kept in the dark. It is a closed club at that decided.
:06:47. > :06:52.I do not get it close a club part. Deith in a bank should be paid
:06:52. > :07:02.billions of dollars as a bonus when the British Prime Minister gets
:07:02. > :07:03.
:07:03. > :07:08.$228,000 a year? That comparison is irrelevant. The important thing is
:07:08. > :07:12.that the amount of money that a banker is paid is consistent with
:07:12. > :07:19.the value with by individual and their contribution to the firm over
:07:19. > :07:29.a period of time. There is the idea that a large and - a -- a large
:07:29. > :07:29.
:07:29. > :07:37.amount of money is going out. The money that we took from JP Morgan,
:07:37. > :07:41.resulted from the fact that we did well. A former chairman other
:07:41. > :07:45.financial institutions said he has worked in the city of London for
:07:45. > :07:49.three decades. He said he has seen several recessions but he said in a
:07:49. > :07:56.party days, I cannot recall the underlying, sustained anger across
:07:56. > :08:05.all sorts -- social levels aimed at Bank shows and the market economy
:08:05. > :08:10.as a whole. -- bankers. He has never seen such anger. We see the
:08:10. > :08:16.protest in Wall Street and other cities across the world. This is
:08:16. > :08:22.unprecedented. Why do you think this is happening? Do you feel
:08:22. > :08:32.embarrassed in any way by the huge bridges that people are except in?
:08:32. > :08:37.
:08:37. > :08:45.-- India's. The sources of these protest very. What caused this
:08:45. > :08:49.crisis? We have to live with his dead as a result of this financial
:08:49. > :08:54.crisis. Where did it come from to mark it came from a long period, at
:08:54. > :08:58.a decade, of outrageous complacency on the part of those who were
:08:58. > :09:01.borrowing money and those who were lending money. As well as the part
:09:01. > :09:09.of the government who was steered - - stimulating the economy along the
:09:09. > :09:19.way. And the parts of the bankers who acted as litter came -- the
:09:19. > :09:21.
:09:21. > :09:28.litigant in between. Asset bubbles were created. And a pot. Many
:09:29. > :09:33.individuals and firms generated wealth for themselves. The anger is
:09:33. > :09:42.perfectly legitimate and reasonable and understandable. Do it you need
:09:42. > :09:49.to address this anger at how the free market operates thank you this
:09:49. > :09:57.is a personal view. What we are operating in is a market that was
:09:57. > :10:00.read in many ways. It was primarily raid by a combination of regulators
:10:00. > :10:05.and the government who were quite happy with taking every little bit
:10:05. > :10:10.of the economy and pumping it back again to keep things going. The
:10:10. > :10:20.spare ball rolls back downhill and crashers things in its path. --
:10:20. > :10:21.
:10:21. > :10:26.snowball. Banks were subsidised by their governments. It came about as
:10:26. > :10:29.a result of the people who lend money to banks. They think they
:10:29. > :10:37.will get the money back because the government was guaranteeing it. It
:10:37. > :10:46.was not a real guarantee. It was bassoons. As a result, banks were
:10:46. > :10:54.borrowing money at the wrong cost. All of it was wrong. That is one
:10:54. > :11:04.way of looking at it. The points others were making it is that you
:11:04. > :11:07.
:11:07. > :11:14.need to reconnect the financial with the moral. You agree with her?
:11:14. > :11:18.They have to meet many ways. The past 10 up to 15 years are in the
:11:18. > :11:22.process of working themselves out. You have to look at the strife in
:11:22. > :11:30.the banking market over the past three months, including this week
:11:30. > :11:34.and next week. We will talk about back reforms in a moment. Speaking
:11:34. > :11:42.philosophically, do not think there is an alternative? Capitalism is to
:11:42. > :11:46.be recruited somehow, as Bill Gates said in 2008. It has to look work
:11:46. > :11:52.not only for wealthy people but also the poorer people. It is a
:11:52. > :11:57.philosophical issue. It works if there is a equal playing field. It
:11:58. > :12:03.is difficult to achieve. It starts with giving every charity a good
:12:03. > :12:10.education. It is as simple as that. What level playing field is there
:12:10. > :12:15.if the kids do not have the same chance to succeed? That is what
:12:15. > :12:25.governments have strived for. To your immediate moral question, what
:12:25. > :12:27.
:12:27. > :12:31.do we need to do to change the business today? To my mind, it goes
:12:31. > :12:36.back to the same concept of the level playing-field. We have to
:12:36. > :12:46.remove the advantages of an established quick. Like the closed
:12:46. > :12:50.
:12:50. > :12:54.clubs Europe prone to before. I have not seen that. When we talk
:12:54. > :13:00.about creative capitalism, it is interesting how people at by
:13:00. > :13:03.demonstrating, not against people like Bill Gates or Steve Jobs. They
:13:03. > :13:07.are people to create is a bit hit and two made billions of dollars in
:13:07. > :13:12.a process. When you see the reaction to the death of Steve Jobs,
:13:12. > :13:22.you cannot imagine that been done for a banker. No you cannot. Far
:13:22. > :13:24.
:13:24. > :13:27.from it. But why? Yd you'd think that? Banking is an abstract
:13:27. > :13:36.concept to most people. Most people relationship with the bank is
:13:36. > :13:41.paying money and taking money out. It is not an exciting experience.
:13:41. > :13:44.It is a necessary expense. Not unlike a relationship individuals
:13:44. > :13:50.have with their water companies. You do not seen any warder bosses
:13:50. > :14:00.being analysed a bell. It is not because they are bad. It is because
:14:00. > :14:03.
:14:03. > :14:06.One of the key objectives was for the British Government to assure
:14:06. > :14:11.that never again would they be taxed at their weight a financial
:14:11. > :14:19.institution. What was the key recommendation to prevent this
:14:19. > :14:22.recommendation to prevent this happening? Two things. A much
:14:22. > :14:28.higher level of capital for the banks. For every dollar they lend,
:14:28. > :14:35.rather than holding three or 4p, they need to hold 10p. That is the
:14:35. > :14:38.first thing, more capital. In addition, it is important for not
:14:38. > :14:46.just shareholders being exposed to losses of the bank, but the
:14:46. > :14:49.creditors. If you buy a bond with a bank and the bank is in trouble you
:14:49. > :14:58.should be at risk. That did not happen. Bond holders were bailed
:14:58. > :15:02.out at the expense of taxpayers. Bond holders must take a risk. That
:15:02. > :15:05.was recommendation number one. The second point was, we said that in
:15:05. > :15:13.Britain we have a number of universal banks, combining retail
:15:13. > :15:17.banking with investment banking. We said that at the end of the day
:15:17. > :15:26.that package makes it difficult for the Government to go in and wind a
:15:26. > :15:29.bank down without putting taxpayer money at risk. It would be easier
:15:29. > :15:32.for the Government if we took the retail banking business, the
:15:32. > :15:40.everyday banking business, and put it in a separate subsidiary from
:15:40. > :15:48.the investment arm with its own capital. So if the investment arm
:15:48. > :15:51.fails, it is left to sink. The retail arm is safe. That is right.
:15:51. > :15:56.Once a banking group fails, what the Government can do is treat the
:15:56. > :16:00.two pieces differently. Independent of which one causes the failure,
:16:00. > :16:10.they can take the retail bank and put it into government ownership
:16:10. > :16:11.
:16:11. > :16:17.temporarily and wind the investment bank down. Would that have helped
:16:17. > :16:23.in the example of Lloyds Bank? �20 billion was used to bail out the
:16:23. > :16:30.bank for a 43% stake. But Lloyd's does not have a significant
:16:30. > :16:36.investment arm so it would not have helped. Our recommendations are
:16:36. > :16:43.detailed. There are different specific recommendations. There are
:16:43. > :16:53.some around capital. It would have prevented the Lloyd's problem
:16:53. > :16:53.
:16:53. > :16:58.entirely. The Lloyd's problem was very specific. The bank did not
:16:58. > :17:03.have enough capital or cash. Under the new rules they would have much
:17:03. > :17:07.more of both. The extra cost of forcing banks to have this firewall
:17:07. > :17:10.means the cost would be passed on to borrowers, the chairman of the
:17:10. > :17:13.commission, Sir John Vickers, said that the proposal would effect the
:17:13. > :17:23.profitability of banks, the remuneration of those who work for
:17:23. > :17:31.
:17:31. > :17:34.the banks and also the consumers. On the margin, probably, yes. We
:17:34. > :17:42.estimated the aggregate cost for the banking industry would be
:17:42. > :17:52.between �4 billion and �7 billion. As a percentage of the banking
:17:52. > :17:54.
:17:54. > :17:57.assets, it is tiny. Total assets in the UK are over �1 trillion. The
:17:57. > :18:02.incremental costs, even if they were passed on to the borrowers,
:18:02. > :18:05.which they will not be, would be very small. But there are other
:18:05. > :18:10.things banks can do before passing on cost to borrowers, starting with
:18:10. > :18:13.reducing the compensation for those who work for banks. In terms of
:18:13. > :18:16.this discussion, ahead of the G20, about what is sometimes called a
:18:16. > :18:26.Robin Hood tax, a tax on financial transactions, France, Germany
:18:26. > :18:36.
:18:36. > :18:44.supported, the UK only if it is global. It is getting some traction.
:18:44. > :18:49.Is it a good idea? I do not think so. Any time you look at taxation
:18:49. > :18:55.policy, you must be clear on what you're trying to achieve. There are
:18:55. > :19:00.two motivations for a transaction tax. The first is to raise money.
:19:00. > :19:04.Take it out of the banks and give it to somebody who needs it. If you
:19:04. > :19:07.want to take money from banks, just take the money from the banks,
:19:07. > :19:12.rather than going through a complicated transaction tax. That
:19:12. > :19:20.is what the Government did with the balance sheet levy in the UK.
:19:20. > :19:25.Different countries have different approaches. But for the transaction
:19:26. > :19:30.tax, the second objective is to reduce the velocity of speculation.
:19:30. > :19:33.To make it harder for people to trade in and out of markets. Some
:19:33. > :19:39.of the transaction tax would be paid by high fricassee traders,
:19:39. > :19:42.speculators, but a lot would be paid by everyday end users.
:19:42. > :19:52.Effectively the family going on holiday who takes out some euros
:19:52. > :19:52.
:19:52. > :19:59.will end up paying a little before it. But it would curb speculative
:19:59. > :20:06.trading. That is not a bad thing. When I look at the causes of this
:20:06. > :20:16.crisis, speculative trading was down towards the bottom. Shadow
:20:16. > :20:19.
:20:20. > :20:29.banking by hedge funds? It was important in one regard. Shadow
:20:30. > :20:30.
:20:30. > :20:40.banks that were not really shadow banks. But it is all part of that
:20:40. > :20:45.package. It is a misdirected tax. But the German Finance Minister
:20:45. > :20:48.thinks it would be a good thing for the EU to take a lead on this. It
:20:48. > :20:51.would help bring about tougher regulation of the bank's. I do not
:20:52. > :20:55.think it will improve regulation. It will not reduce riskiness of the
:20:55. > :20:58.banks. There is no indication that lots of trading has been damaging
:20:59. > :21:02.to banks. To the contrary, in fact. There is the question, will this
:21:02. > :21:07.make the world a better place to leave? My short answer is no.
:21:07. > :21:11.you are against it? Yes. But for the EU to apply it single-handedly,
:21:11. > :21:16.it would cause markets to move out of the EU. Perhaps that is what
:21:16. > :21:21.they want. We're taking a different approach in the UK, trying to make
:21:21. > :21:27.the banks safe. Once they are safe, let them do these things, but then
:21:27. > :21:37.speculate, as long as they remain safe. That should create the
:21:37. > :21:37.
:21:37. > :21:42.optimum conditions for growth. do you think when people ask, have
:21:42. > :21:46.the banks learned the lessons? When you look at the collapse of MF
:21:46. > :21:53.Global because it had a $6 billion bet on sovereign debt and has had
:21:53. > :21:58.to file for bankruptcy, it makes one wonder. One wonders about the
:21:58. > :22:06.gamblers who are risking money in this way. It does not look like
:22:06. > :22:09.they have learnt their lesson. new commission on banking, the
:22:09. > :22:18.first thing we agreed,we agreed, human beings will continue to make
:22:18. > :22:21.mistakes for the rest of time. So to build a system on the
:22:21. > :22:31.presumption that people will not be doing really stupid things would be
:22:31. > :22:33.
:22:33. > :22:37.a fallacy. So the lessons have not been learnt by bankers?
:22:37. > :22:40.interesting thing about MF Global is that it appears that that is a
:22:40. > :22:50.firm run by shareholders and private creditors that made a bet,
:22:50. > :22:50.
:22:50. > :22:56.failed, went bankrupt. The people who invested will lose, the
:22:56. > :23:06.there is no relevance to the broader system. That is the
:23:06. > :23:09.
:23:09. > :23:13.yourself? There have been rumours you may be going to the Swiss bank
:23:13. > :23:19.UBS, who have also had problems with that rogue trader. Do you
:23:19. > :23:23.fancy going back? Not immediately. I left JP Morgan very happy, 26
:23:23. > :23:29.years there. I spent most of the last 18 months on this independent
:23:29. > :23:36.commission on banking. This was very interesting for me. I think we
:23:36. > :23:45.did good work. I believe we added to the greater good. No plans to go
:23:45. > :23:49.to UBS. But would you go back to banking full-time? You never say