Martin Taylor presses his fingertips together, leans back in his chair and stares into the distance in contemplation. I’ve just suggested to him that if he’d fired Bob Diamond two decades ago the whole history of the global financial crisis might have been different. After a microsecond of thought, Taylor breaks into a smile.
“I like to think the financial system didn’t hang on a binary choice of mine in 1998 – that would really be solipsism in the highest degree!” he chuckles.
Fair enough. But the Apprentice-style fire-or-not-fire decision scenario was real enough. Taylor himself described it in an article for the Financial Times a few years ago.
Taylor was the chief executive of the Quaker-founded British bank Barclays. And Bob Diamond’s investment banking division had blown up due to an unexpected sovereign default in Russia, forcing the group to register a large loss.
What made it worse was that tight trading limits for Russian debt set by by the bank’s board had been deliberately bypassed by Diamond’s traders. The ambitious American banker, humbled, was offering his resignation.
Taylor turned it down believing that Diamond was too important to lose. Diamond, of course, went on to drive Barclays into the very heart of the global credit storm that unleashed disaster on the world and the UK economy in 2008.
And he became one of the public villains of the crisis thanks to his spectacularly ill-judged suggestion before the Treasury Select Committee in 2011 that the “period of remorse” from bankers “needs to be over”.
“Looking back on it I think I made the wrong call,” Taylor tells me, sitting in his rather spartan office on the upper floors of the Bank of England’s City of London headquarters. “But it was more about Barclays than the financial world as a whole.”
Tieless, glasses nestling in his blazer pocket, wearing comfortable slacks, 66-year-old Taylor resembles a country solicitor more than a former City titan or the influential regulator he is now, as an external member of the Bank of England’s Financial Policy Committee (FPC). The only hint of financial services about him is a faint pinstripe on that dark blue blazer.
I’d wanted to interview Taylor for some time, and not only for his juicy insider knowledge on Barclays. He’s also been at the heart of some of the major post-financial crisis reforms and institutions.
He served on the Independent Commission on Banking (better known as the Vickers Commission, after its chair, Sir John Vickers) which was set up by George Osborne to decide whether or not to split up investment and retail banking in the wake of the crash.
And since 2013 he has been a member of the FPC, which sniffs out financial crises before they happen and orders the inflation of banks’ capital buffers when they seem to be getting too excited.
Taylor’s time with the commission is drawing to an end. He has informed the Treasury he will step down no later than June 2019. So perhaps it seemed a reasonable time for him to reflect a little in public, not just on his time on the FPC but on the decade since the crisis.
The first question is, how much has really changed in our financial system over the last 10 years? Taylor’s answer is unequivocal, trenchant even.
“I don’t know whether to laugh or be irritated by it but one of the things I’ve found about a lot of the writing about the tenth anniversary of the crisis is that lots of them basically said ‘nothing’s changed’. But actually almost everything has changed,” he says.
“The industry has changed profoundly. The relationship of regulatory supervisors to industry has changed profoundly. The incentives have changed. The rules on pay have changed. The rules about liquidity in banking have changed. I think there’s been an extraordinary policy response. And I think there’s been some cultural change. Those who wrote it’s all the same, I don’t know where they’re looking. They don’t see the world that I see.”
I decide this is not a good time to divulge that I myself recently wrote an essay lamenting the timidity of the reform effort. We move on.
Lots of banks have been fined huge sums by regulators over various scandals, from interest rate rigging to insurance mis-selling. Plenty of bosses have departed under a black cloud. But virtually none of the top bankers during the crisis whose institutions foundered and incubated gross misconduct – not even Fred Goodwin of the Royal Bank of Scotland – have been struck off from the Financial Conduct Authority’s “approved persons” list. Inclusion on it is needed to work in the industry.
Doesn’t that, I suggest, represent a gross failure of nerve by regulators, a blow to genuine accountability? Taylor’s not having it.
“I think on the whole that the people at the top of institutions that went wrong in the financial crisis, they lost their jobs, they lost a lot of money, they lost their reputations. I think the idea that they didn’t suffer is a strange one. Imagine what it’s like to be in their shoes – it’s not great actually,” he says.
“I don’t think having the FCA write something on your tombstone is necessarily the be all and end all.”
A new book on Barclays’ roller coaster history by the writer Philip Augar relates that when Taylor was in charge he wanted to split off the troublesome investment banking division. Indeed, he resigned after failing to win the support of the board for his radical restructuring plans.
The Vickers Commission was asked to look into that very question, not just for Barclays but the entire UK banking sector. Yet Vickers stopped short of recommending a clean break and proposed a somewhat complicated “ringfence” of banks’ retail arms instead.
Why didn’t Vickers go the whole hog? Wasn’t this a missed opportunity, especially from Taylor’s perspective?
“I’ve done lots of work for government. If you’re on one of those committees, the ideal space to get to is somewhere where there’s an overhang on a Venn diagram and where what you think is a proper solution is something that government and parliament is going to accept,” explains Taylor.
So did he think that a full split proposal might not be welcomed by the government and risked being rejected?
“I was certainly conscious of it,” he says. “Finding a resolution to something does just mean recommending something. Recommending an ideal solution which government then does not enact is useless. Equally, finding an inadequate solution the government enacts is useless too.”
But he’s adamant that ringfencing, finally due to come in next year, is an acceptable solution to the problem of banks funding their casino trading habits with ordinary depositors’ savings.
“I remember when we reported it in September 2011 and said we wanted these things to be done by the beginning of 2019, a lot of people laughed and said, ‘This is for the long grass and it’s never going to happen’. And you know what? It’s three months away and it’s happened,” he says.
Yet, on the subject of Vickers, there’s been an unusually public disagreement between the Bank of England and Sir John on the question of banks’ capital requirements.
The FPC has mandated UK banks to have a capital buffer [shareholders’ equity to absorb potential losses] of at least 4 per cent of total assets. But Sir John, essentially, thinks that’s too low – and a floor beneath what the Vickers Committee itself proposed.
What does Taylor think of the concerns of his old chair?
“John has been vocal about the systemic risk buffer. I’m comfortable that where we’ve got to, we’ve got a system with about as much equity as Vickers proposed, and arrived at in a slightly different way, and with an awful lot more debt that is convertible into equity,” he says.
“Would I prefer in an ideal world for some of that debt to be equity? Yes I would. But I think we’re in the right place.”
I point out that even Mervyn King, who was the Bank’s Governor when Taylor joined the FPC in 2013, is now saying that banks should have substantially more capital than the regulatory minimum.
“Mervyn’s a friend and I’ve known him a very long time. He was Governor of the Bank for 10 years and deputy governor for five and chief economist before that and he didn’t actually do it in those 20 years,” says Taylor, slightly mischievously.
“If you’re a macroprudential regulator your default setting is to fall asleep worrying about the banking system and to think a little bit more capital would be nice. And the next time you think maybe a little more. We don’t want more capital to make supervisors sleep better – we want more capital to have the appropriate amount of resilience in the system.”
Often central bankers and regulators are surprisingly gregarious in person but automatons when they write anything down. With Taylor it’s almost the other way around. As an interviewee he’s rather hesitant, diffident even. Our talk is punctuated by long pauses for thought. At a couple of points he asks, almost plaintively, “Don’t you think?”
Rather disappointingly, he refuses to talk at any length about Barclays, where activist investor Edward Bramson is now pressing the bank to get out of investment banking, just as he urged all those years ago.
Yet a supremely self-confident intelligence shines out of Taylor’s speeches for the FPC, which are crowded with erudite and witty historical references to imperial China and the French revolution. Their substance is usually the magisterial brushing aside of the latest anti-regulation fallacy propagated by the financial lobby.
And there have been some Exocet newspaper articles. Along with the one that lifted the lid on the history of Bob Diamond at Barclays was a particularly memorable broadside in 2009 which castigated his former banking colleagues for paying massive bonuses to staff out of illusory paper profits during the bubble.
His mordant conclusion: “The system was brought down not because risk management was deficient (though it was), nor because greed was rampant (though it was), but because bankers could not count.”
Perhaps that unusual self-confidence with the pen reflects his origins in journalism, and his editing of the Lex investment column for the Financial Times in the early 1980s.
Before I leave, I suggest to Taylor that it’s inconceivable that anyone today could progress from journalism to senior banker to regulator in the way that he did. “It was inconceivable then!” he laughs.
“I had a very strange career. But I think people ought to change sector. One of the problems I found towards the end of my business career was I was dealing with people who knew everything about a rather narrow area. You want people like that – [but] you don’t want everyone to be like that. Because otherwise it’s quite hard to see where connections are made.”