Bank Reform


Bank Reform

The Preface to the first edition of Lingard’s Bank Security Documents published in March 1985 contains the following:-

‘Unfortunately, the evolution of security documents is under pressure as banks from overseas – – – flood into London. Such banks often lend at highly competitive rates to strong customers. The result has been to increase the competitive pressures on banks to a point where they are sometimes denied the detailed financial information needed to make a proper assessment of the prospects of a company, and are forced to keep expenses to a minimum – – -. Unless these pressures abate, the authorities may well find they have to mount some bank rescues.’

The pressures increased and were compounded by credit default swaps under which gullible banks participated in bad loans in return for fees which enhanced the bonuses of the ‘bankers’ responsible. Grossly inadequate provisions for the bad debts were made in the audited accounts and regulatory returns.

The Preface to the fourth edition published in August 2006 – before the crash – again warned of “the distinct possibility of forthcoming troubled economic times”. Senior bankers gave priority to selling the bank’s products in a highly competitive market and failed to invest adequate resources in risk assessment. Only now is interest being shown by banks in risk assessing software available from major actuaries such as Towers Watson.

The fifth edition of Lingard’s Bank Security Documents as at 31st August 2011 has now been published to assist bankers and their advisers to structure sound security and sound lending and insolvency practitioners to identify defective security.

The regulatory failures of the recent past have now been admitted and the Bank of England will again take charge. However, competitive pressures remain and the policy of the EEC and British Government is to increase competition by splitting some of the larger banks. The question is: how will the regulators ensure that banks do impose appropriate financial covenants in their lending and follow correct procedure in creating security? Will overseas banks continue to take big risks to grab the business? And how will credit default swaps and other derivatives be policed?

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