Lord mayor talks liquidity, regulations

Alderman Nicholas Anstee, lord mayor of the city of London. Photo: cityoflondon.gov.uk.

By Wei Lai

Editor's note: London is one of the world's leading international finance centers. Alderman Nicholas Anstee, lord mayor of the city of London, is the ambassador for all UK-based financial services. Global Times reporter Wei Lai had the chance to sit down with Anstee and discuss issues such as the financial crisis and stock markets.

GT: Talking about the global financial crisis, what lessons do you think deserve our attention?

Anstee: It's possible to overstate the importance of bonuses as contributing to the financial crisis. It is, however, of less relevance when looking at liquidity and capital regulation at the time.

And don't forget that the IMF, interestingly, that great body with oversight of the financial services industry, had written in 2007 that there is systemic risk in the industry. How wrong were they?

We know what happened within six months. Even those big institutions that have oversight, they have got their internal procedures and information on those wrong. What we have recognized is capital requirements and liquidity regulations, in relation to banks and banks' balance sheets, have come under scrutiny.

People are looking at the excessive risk that was taken with all the derivative products. They found it was difficult to work out the connectivity between institutions - the exposure that each had to each other - so what was the counter-party risk between Lehman Brothers Bank and all the other banks where there wasn't that visibility? So now we have derivatives of which information is available to regulators. So the world is getting better and, of course, ultimately we're looking at the conduct and behavior of rating agencies that are undoubtedly going to - well, have - come under some form of regulation in the future.

GT: Personally, when do you think the financial crisis will come to an end?

Anstee: It's not coming to an end. It's coming in to an end. There's not going to be a definite point when we can say, "It's over." I guess we could say, "When all the debts back home in the UK owed by the banks, and the support that's been given, has all been fully repaid off." But that's some way off. That process of payment will start next year, and the support is necessary to be given. But in terms of where the banks are, we're in a much more stable place today than we have been in for some years; we have regulators doing better jobs than they did in the past. Governance procedures that have operated in banks have been beefed up, and I think what you'll also find is that the embedded culture of people operating in financial institutions will change, at least for a while, until the next generation thinks it can do better than the current generation.

GT: Two months ago, UK's The Times published an opinion article saying that people could not believe in the stock market and gave 10 reasons why people should leave the stock market. Do you think the stock market truly and timely measures the local and global economy?

Anstee: It depends. If you're looking at the index, it depends on what comprises the index. If you look at the FTSE 100 index, maybe there will be one or two unique businesses that are very much country-focused - most of them are international. So it will represent the global market space, not the UK domestic market space. So the FTSE 100 index represents more of a global environment than it is the UK environment. But, of course, many UK businesses have a significant proportion of their business based in the UK, but they have been tapping into multiple economies providing natural hedges in terms of profit generation, against a smoothing of their profit increments.