The present scandals involving Barclays Bank International, with other large international banks likely to be sucked in, in rigging interest rates show yet again the critical importance of regulators having maximum information in as close to real time as possible.
British and US regulators are still trying to find out what happened, who was involved and how long the illegal practices lasted.
It would have been easier and far less damaging if they had managed to do this within weeks of the first manipulation.
Much of the world is now in recession or near zero growth over the banking crisis that started five years ago.
Over risky behaviour generally was to blame, but what sparked the crisis was a sudden realisation that American banks had been dishing out 100 percent mortgages to people who had no hope of repaying their loans, combining these mortgages into huge blocks, and then selling shares in these blocks as investment-grade securities.
Compounding the mess was a tendency to overvalue property in the first place when giving a mortgage, in the pious hope that the property would eventually rise in value.
Investigations into the resulting implosion showed that bankers were going beyond their expected business roles, seemed to be driven by total greed for short-term profits, and were keen on elastic interpretations of the law.
Again regulators who had full access to bank data might well have been able to sound warnings and even take action well before the implosion. Even in Zimbabwe we have had banking problems.
Some banks owned and effectively controlled by a single person or a small group of investors have gone under after dishing out loans, made up largely of other people’s money, to their other businesses.
All this has come out when the bank collapses and the Reserve Bank of Zimbabwe has had to step in and examine the books.
Yet how much easier it would have been to take remedial action if the Reserve Bank had been able to track each bank’s loan book, notice the trend to insider trading when the dubious loans were still a modest percentage of the total loan book and probably less than the equity the borrowers had in the bank, and called a halt.
Shareholders might have been damaged, but at least depositors would have been safe.
Banking is different from other businesses. If bankers risked nothing but their own capital, in other words took no deposits, they could be given more leeway.
Indeed investment companies do precisely that and are treated like any other business. If they go down a bunch of shareholders lose their shirts, but that was the risk they took.
But because bankers manage other people’s money, and because they also manage much of the world’s financial transactions as agents rather than principals, they have to be regulated.
And regulations have to be tougher, especially in the area of letting regulators know what is happening while it is happening.
It seems that no matter how tough a regulation might be, some banker somewhere is likely to think of ways of getting round it, which is legal but undesirable.
If a regulator saw this they could have the old regulation extended rapidly to stop that.
We also know, as in the latest Barclays case, that employees of some banks, or bank bosses themselves, might actively cheat. No criminal action succeeds.
The world’s jails have remarkably few bankers behind their bars.
Even when a criminal prosecution succeeds, a rare event, it is usually some middle-level employee who is found guilty, while his bosses escape with a resignation letter and a comfortable retirement on their private investments in safe securities funded by the incredible salaries or bonuses awarded the top echelons of bankers.
All this activity, the willingness by some bankers to risk other people’s money foolishly, and a relaxed attitude to regulation means that regulators have to be better armed.
And that means they have to know a lot more about what banks are doing while they are doing it, instead of just clearing up the mess later.
Modern technology allows day-to-day monitoring of banks. Obviously regulators need to keep legitimate prudent business practices confidential, just looking rather than talking. But that is easy to enforce.
Firefighters know that the best time to put out a fire is when it starts, while it is still small and has yet to spread.
The same surely applies to bank crises, stop them when only the shareholders could be burned, not the unfortunates who deposit their money or are led on by weird promises made by people who have little idea of their risks.