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Why bank Regulation is a joke

Here are two stories I was told today. They illustrate why those among our politicians who tell us that all we need is “better regulation” are either inbred or think we are.  I have had to leave out all the identifying names at the request of the two people who told me.

The first story concerns a British near shore, off-shore Tax haven and a very large European bank, well known in Britain.

According to the person who spoke to me this bank does a massive amount of its work in this tax haven, BUT everything they do is accessed from servers that are physically in Switzerland.  The bank staff in the tax haven do their work and go home as anyone else would. But then some of them return in the evening and their job is to close all the work out completely and leave no trace of the deals in the tax haven. At the end of each day there is nothing that any UK regulator could access. All the work has been ‘done’ under the jurisdiction where the servers are located.  This seems to me to correspond closely to the testimony of the German bankers who were flown to Ireland for the day for the purpose of doing deals they could not do in Germany.  This is the online version of the same idea.

The work is done in one place, but falls in the jurisdiction of another.  This on line version not only cuts out the local regulator but further completely cloaks the transactions in Swiss secrecy but without the banks being seen as a ‘secretive’ swiss bank.  It maintains its identity as a UK bank but avoids any pesky ‘regulators’ who might come snooping.

Not that the bank would have any trouble from UK regulators.  This same person told me that this bank had once been told by the SFO that SFO officers would ‘raid’ it, but in a year’s time.  A year later they were duly ‘raided’. Nothing was found, the SFO had done its duty but at the same time they had made sure that there had been no risk of potentially embarrassing material being found.

Although the person told me in good faith and professed to be telling me the truth I felt uneasy about it. So I checked this with another banker who works in Europe at a quite different bank.

This second banker laughed and told me this rang perfectly true.  She went on to tell me this.  She had been working as a market risk manager at a large lender in a country at the eastern end of the Med.  Her job had involved watching two parallel sets of accounts which the bank kept, one in the country in which they were based and one in The Cayman Islands.  The banker was told that if ever she saw or heard that the bank regulator, auditor or any outside official was coming, she was to transfer anything she was told to, to the Cayman account and log out from it. Thus hiding from the national regulatory ’embarrasing transactions or activities’.

The parallel accounts allowed the bank to keep tight records of its transactions and accounts for the purposes of internal accounting and risk management but to do so in a way that allowed them to hide anything and everything from the national regulator.

I am sorry I can’t give you names but if I did I would cause havoc. I realize it does mean these accounts lack in the details that could be used to verify them.   I know the people who told me. I trust them both.

They show me that regulation is window dressing.  That what is ‘regulated’ is largely whatever the banks are content with and nothing more.

The second banker also told me that the story about the SFO rang true. When I asked why, she laughed at me and said I really was being naive.  She said that to her personal knowledge one of the banks she had worked for held accounts for some of that country’s most prominent national politicians the purpose of which were to massively avoid taxes and therefore would embarrass both the financial and political class were they to be ‘investigated’.  Thus, she said, it was common for banks to be given lots of notice of any ‘raid’ so as to make sure nothing incendiary could be found.  That way the raid could be seen to be rigorous and thorough and yet have no chance of turning anything up.

Regulation is a joke.  It is window dressing for the proles to comfort themselves with. It works much like the Christmas time displays. Simple mechanisms behind thick glass to give children a warm feeling.

23 Responses to Why bank Regulation is a joke

  1. JamieGriffiths November 28, 2010 at 1:32 am #

    Sovereign Debt Stats Fest at Zerohedge

  2. Sabretache November 28, 2010 at 7:01 am #


    I'm another of your new readers – Sufficiently impressed to subscribe to the RSS feed a couple of weeks ago.

    I operate the WikiSpooks site. Do you have any objections to me posting selections of your stuff there – duly credited and and properly linked?

  3. Dope Addict November 28, 2010 at 9:01 am #

    Thanks for fleshing that out, Golem. Most thinking people know regulation has been co-opted, but exactly how it works in practice remains a mystery.

    In the US, IIRC, co-optation started with Reagan rolling back the generous benefits enjoyed by staff of the regulatory agencies, turning those jobs into ones held for life into ones held until you could switch to the private sector, encouraging regulators to please their future employers (something along those lines, anyway.)

    In Europe maybe it evolved differently, with much the same end product.

  4. Golem XIV - Thoughts November 28, 2010 at 9:22 am #


    I'm glad you have found us and that you find things here of interest. I have no objection at all. In fact I am grateful to you for helping to spread the questions and thoughts.

    Hello DopeAddict,

    You put your finger on it. We have to have things other than money which people feel loyal to and are willing to fight for. If a country loses that then they are doomed.

  5. dave from france November 28, 2010 at 9:43 am #

    Sabretache — good to see you, I've been following Craig Murray's blog since the beginning. Just popping around there to leave a link.

    Dope Addict — the revolving door, so many examples theses days but one of the many flagrant ones recently was the former number two at HMRC successfully 'negotiating' with them from Vodafone .

  6. dave from france November 28, 2010 at 10:05 am #

    Strangely enough, the previous poster at CraigMurray early this AM , was the economy editor at newsnetscotland, who 'distributes' Golem articles …


  7. dave from france November 28, 2010 at 11:26 am #

    I can't do clickable links with my hasty comment on the Keegan article in today's Business page at the Observer/Guardian …Someone?

  8. ianu November 28, 2010 at 11:51 am #

    worked for me M Grenouille-Deux!

  9. Sean November 28, 2010 at 1:10 pm #

    No David I disagree the Politicos do believe it is the solution. Its part of their DNA to believe they can formulate a legal and regulatory framework that can be directed from the centre.

    And over the last 15 years ago we have had the precautionary principle that has sent this type of thinking off a cliff into the land of the brain dead.

    Systems are never wholly safe, engineers understand that you cannot construct perfect systems they build into their systems failsafes and firewalls as demonstrated in the real world the other week in Singapore and the blow-out on the A380. This is called engineering safety philosophy.

    Once again social "sciences" have polluted intellectual understanding of how human systems work. Time and time again I see accidents on sites and every time the people responsible have played to the rules and not thought through the implications of their actions. Our universities are breeding robots…but that probably just me being "anti-Intellectual"

  10. dave from france November 28, 2010 at 2:05 pm #

    ianu — merci. Something to do with me ActiveX.

    sean — Installing rules-based systems in human activity is a brilliant way of destroying old-fashioned common sense and integrity?

    One reason why it's done is often based on fear of consequences, fear of litigationan ex, another would be a totally misplaced view that 'people' can be programmed in the same way as an engineering safety system, and that may be because of a mis-application of your principles (which are brilliant in the right place).

    The first thing I learnt in economics was "apples and pears", the first in sociology was "unintended consequences" !

  11. Lars Eirik November 28, 2010 at 2:50 pm #

    From the Telegraph today, concerning the Irish bail-out:

    "A series of increasingly fraught conference calls between finance ministers have continued all weekend as Europe struggles to put together the final parts of a deal ready for an announcement before the markets open tomorrow.
    Eurozone ministers fear that if no deal is published today, shares will again plunge in bank stocks, including Royal Bank of Scotland and Lloyds, over concerns that debt holders may be forced to accept losses. It is still unclear whether bond holders will suffer losses despite reports that they may do."


    Is that not sweet with all the pan-European concern for bank's stockholders values? I hope the Irish people take notice of to what purpose all their suffering will serve: Prop up share values for bank's owners.

    Then, of course, justice requires that not only the bank's bond holders be protected, but also the bank's owners.

    This coup d'etat may be a one-off occasion, so better all the financial class get on board now.

    From same article:

    "Irish fury as EU 'nationalises' Bank of Ireland".

    Now, who has ever heard of that, a foreign entity (EU) "nationalizing" in a foreign country (Ireland). Sounds more like an occupation to me….

  12. mirandola November 28, 2010 at 3:34 pm #

    William Keegan's article available at;


  13. forensicstatistician November 28, 2010 at 8:52 pm #


    I've only recently been referred to your website thanks to a blogger on BBC's Paul Mason website. Will be ordering a copy of your book ASAP.

    Quite topical that you refer to the ineffectiveness of banking regulation. The UK Gvt's Independent Commission on Banking recently requested "Calls for Evidence" on how to better regulate the UK financial sector.

    I recently submitted a paper to them outlining both theorectical rationale and evidence to suggest that lax regulaton was leading to poor quality debt "pushing" & increased scope for fraudulent conduct by the sector (Looting & Bankruptcy for Profit):


    There is clear evidence in this paper of the potential for widescale fraud & abuse, yet the message may well fall on deaf ears.

    How can we raise our voices?

  14. dave from france November 28, 2010 at 10:59 pm #

    Forensic — get your mates to post clickable links in the Press and hi-traffic blogs to your site and Golem's and others such as georgewashington2, many more, diffuse yourself to contacts friends family, link to scots and irish news sites.

    Slower than facebook, but it grows .

  15. oldgustav November 28, 2010 at 11:16 pm #

    I am sorry I can't give you names but if I did I would cause havoc.

    Go ahead and cause havoc then.

  16. Jim November 28, 2010 at 11:30 pm #


    Thanks for the link to your paper; a cursory glance reveals much in common with the thoughts expressed here by Golem and by others too.

    Our French Connection (ribbit!) offers you sound advice. These are, I believe, the tactics that have helped this blog raise it's profile recently. Posting frequently, making one's points clearly and responding to comments promptly and politely have done Golem no harm either!

    I look forward to hearing more from you, both here and at your own blog.

    I would also recommend Shaun Richards blog:


    I believe it has been mentioned here before, in fact, I'm sure that is how I first came across it.

  17. Jim November 28, 2010 at 11:31 pm #


    any joy with the link to your talk in Lancaster?

  18. RichGB November 29, 2010 at 8:56 am #

    Hi Forensic

    Very interesting paper. The upsurge in knowledgeable subscribers and cross-linking between blogs is becoming a potent force.

  19. Anastasius November 29, 2010 at 10:08 am #

    From a small country at the eastern end of the Mediterranean. Greece in fact. There have been many financial scandals here over the last few years, some of which have been the subject of parliamentary and judicial enquiries. Nothing has ever come out of these enquiries. The latest one, which concerns the Vatopedhi monastery real estate deal, has also come to nothing, although it is very clear from evidence of house purchases etc, that the ministers involved pocketed very large sums of money. But no evidence can ever be found. Up till now, most people here have accepted that it is the judicial system that is to blame, as it is also involved in cases of real-estate manipulation. (Yes, really and truly). But perhaps there is another layer, which you may have revealed in the above article.
    Those involved in the Greek/Siemens bribery scandal are also sitting safely in Germany, protected by the German state.
    While the rest of us are suffering cuts that have a huge impact when basic wages AND most pensions are rather low.
    Fortunately the weather is good here at the moment, so no need for heating just yet.

  20. wirplit November 29, 2010 at 5:35 pm #

    These are fascinating examples of what is really going on in the banking world. But two things I dont understand but probably my ignorance.
    Is a Tax Haven like lets say Jersey as an example, subject to the UK SFO?) Would they not have to be invited in by the Jersey authorities? Ditto for Guernsey or Isle of Man because HM Govt has no direct jurisdiction over the Channel Islands. Hence the real possibility of early warnings…

    In the second example in the case of certain countries in the east of the Med regulation is notoriously hopeless.
    But does this mean that regulation cant work? Corrupt officials and politicians will subvert it if they can but surely there are honest men out there too and in times like these what is needed are regulations with real oversight and real teeth. Places like the Cayman Islands are a scandal but then every country in Europe seems always to have these tax havens where banking secrecy is the greatest good of all. However on the plus side recently there was a big scare put into UBS by the US regulators. The question is will this kind of pressure continue? In that sense looking at the government we have I can only share some of your pessimism.

  21. forensicstatistician November 30, 2010 at 8:52 am #

    Jim, Rich & dave

    Thanks for the feedback and advice. I guess it's slowly, slowly catchy monkey.

    Incidentally, the ICB has agreed to extend the deadline for more input from the banking industry & the public:


    I sincerely hope that they have counted my submission as one of the 130 items received so far. Although I suspect that most input is actually from within the sector itself!

    The pen is mightier than the sword, they say, so hopefully more independent submissions will be forthcoming.

  22. guidoamm December 2, 2010 at 7:45 am #


    The fact that regulation is skewed and ineffectual is the logical result of the monetary system. It is a mathematical truism.

    A debt based fiat monetary system is predicated on inflation.
    Inflation is a dynamic that conforms to the law of diminishing marginal utility. If this were not the case, then there would be a direct and constant correlation between government debt and GDP expansion for example. But as clearly shown by official data, since 1980 government debt progressed by well over 1000% whereas GDP barely doubled.

    So that as the "beneficial" effects of inflation wane, the monetary authorities must inevitably compensate by intervening directly. But again, as intervention gradually looses traction, the authorities must progressively intervene more forcefully and deeper.

    Thus from a political perspective, over time, it is vital that regulation must become lighter, less restrictive and ever less punishing for the sake of the system.

    The corollary to the above is that in a debt based fiat monetary system, over time government must inevitably and necessarily become the largest actor in the economy.

    The second corollary to the above is that as government becomes larger it must necessarily become more intrusive and more restrictive in order to ensure that centrally directed policies can be enacted regardless of any laws that may exist.

    This is a mathematical truism.

  23. Golem XIV - Thoughts December 2, 2010 at 9:35 am #


    I tend to agree with your analysis of the dynamic. The facts about debt versus GDP are indisputable.

    Good to hear from you, Thank you.

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