FSA OR A JUNKYARD DOG?

A supposed banking risk expert from group audit and other parts of his bank's senior-most management asked me today, "doesn't the FSA need a comprehensive rulebook, I mean something solid to supervise and regulate by?"
I know many people are asking such questions including the Treasury Committee, but I nevertheless fell off my Corney & Barrow barstool, or actually didn't, or did both, as I was clearly in a parallel financial universe. I said something sarcastically cutting and followed through with a description of Fred Shredinger's Paradox about whether ICAAP and SREP are in the structured product bucket or outside dead junk in the trading book, or both at once, and how he should remember what Neil Bohr said about how we can't use atomic particle physics to interpret what's really going on in the world, you know, Einstein or Newton or both? He nodded since that being what he'd studied at Cambridge before 2 years at the other Cambridge for a Harvard MBA. Of course the FSA has rulebooks, I said, spluttering on McFall's whisky, the FSA handbook of Rules and Guidance, the Prudential Rulebook and all the rules that are laws of the Capital Requirements Directive, the CRD, based entirely on Basel II with Solvency II, set out in 3 Pillars, thousands of pages, supported by hundreds of research papers, and tens of software systems in the IT market to implement this and that, and fulsome accounting formats and standards mandatory by law, IAS to IFRS... and, by the way, you need a super-computer to do it properly and a new general ledger system, and, above all, people who really know what they're doing, which over 90% involved in Basel II implementations don't much and care less, and some uncompromising know-all in charge with a seat in the boardroom!
The audit-jockey I was berating also moonlights as a rocket-science (crash 'n burn) fund manager, heavily invested in, while trading and short-selling, financial stocks, who thinks capital adequacy should have naff-all to do with his shareholder value, which he moaned seems to have eff-all to do with anything anymore, this 2 days after HSBC shorted 20% of its own shareholders, with another 20% to be sold short and only for the sake of $12bn acquisition funding, masquerading as 'new capital' to bolster the bank's capital adequacy reserves that are well upholstered already!
Anyway, somewhat un-phased, as only theoretical-mathematicians and geneticists can be, my bar-fly banker, who works managerially for group finance in treasury and for group risk with responsibility for Basel II MI, and on liquidity funding, and counter-party limit-settings, which combination, strictly-speaking, is illegal, but commonplace enough for him not to have to know that, starts telling me what's wrong with the FSA! He said he read and agreed with the view that the FSA approach is too light—touch, regulation by principle of negotiable guidance, not by "firm rules of laws" (sic), and while this "old-school tie, old boy, we're all members of the same British Bankers Club" (and him, double-Dutch), approach that once seemed so much more enlightened, but now when compared with the SEC’s lawyer-intensive way of sending in the FBI, and/or the armed terrorist wing of the IRS, at any opportunity to grab the files, and enforce through the courts if needs be every line of huge fat SarBox + B2 volumes of Germanic rules, shows that maybe the softly-softly British way is no longer appropriate in today's distressed and discredited markets - what did I think, I must agree with him, surely? GROUP RISK MANAGER
Apart from telling him he better pay for lunch or I'd throw him over the hurdle rate onto the ice-rink where he belonged, I explained without nuance that he was talking foolishly and if I was his boss he'd be sacked forthwith and sued to repay his last three years' bonuses! Such thoughts make one nostalgic for the good old days when that was, effortlessly, good management practise, but also, I knew, just the unkind sort of rough-play the Dutch take to like speed-skaters on thin ice. This delightful thought sent me off on another rant about today's HR sacking-culture - all about setting colleagues against each other, colleagues all to ready to re-play I Claudius and variously like so many Shakespearean Iagos determine who stays or goes under the ridiculous pretense that every department will face the same equitable %-cuts and can be trusted to sort that out sensibly themselves! Democracy is not something to be welcomed as a principle to be applied when determining which heads must roll! Modern madness, banks are never 'democratic' at any other time, and only pretend to be when making cost-savings! I told him that the FSA's rules are excellently documented but obviously not so that he can both read and understand them, and that they have the force of ARROW reviews, and that even the most under-stated, politest, kindest of warnings from the FSA should be heeded as if delivered with electric-shock stun-guns and cattle-prods, and thus responded to with all urgency, the best brains and highest seniority the bank can muster! But, such is the multi-cultural mix of The City, such perforce opinion is not clearly doctrinaire enough - I might as well have asked him about the risk-management of his ski holiday and whether he's planning to get his yacht out in April, or plans to leave it in the Adriatic near Split until the calmer seas of May, or what he thinks about Quantitative Easing, the QE of EQ without IQ, and its possible impact on interbank lending - answer, zero, he said - another foolish supposition I noted querulously. TRADITIONAL TRANSMISSION MECHANISM BANKING
He said, you know, clients used to think AAA meant something solid, when bankers were respected and respectable, and when central banks and Treasury officials seemed to know what they are doing. He had been at yesterday’s well-attended TSAM conference in London where some experts said they'd concluded, no doubt after long contemplation, that now it's time for the FSA to give up on principles and spend more effort to clarify the rules! I asked who where those, obviously self-styled, 'experts'. He said one is Tony Kirby, now of Ernst & Young, who said he'd "decided principles are a bloody mess. No one is quite certain how to put the principles into effect.” You run into problems of the Common Code vs. Code Napoleonic, among other problems. It's all just "guaranteed to keep the lawyers and advisors happily fat-fee-earning. We need clarity on what is useful, not just what are great debating points.” The other was Bob Gifford, a consultant and author, who chaired the session and who agreed that principles-based regulation created problems and its time is over. MODERN BANKING A LA JEAN TINGUELY, BASEL
I choked on my bearnaise, making the soggy pommes-frites soggier, and said they're talking aping gibberish; all the FSA's CRD principles are clause and sub-clause parts of statute laws (some of which will soon become part of case-law too) and all that differentiates principles from rules is that the former require the bank to invent its own way of implementing while the latter are laid down in precise equation detail. There are good reasons for this, and not just because the banks couldn't or wouldn't agree details in committees. Principles are neither optional nor any less mandatory just because they are not specified in precise atomic detail. Furthermore, if the principles were so defined the banks might foolishly imagine they can be dealt with in separate silos when all CRD principles require for their application to be across everything in the bank!
I said principles are macro-details and macro-definitions. They are the mainstay of Pillar II, SREP, ICAAP and scenario stress-testing to determine capital reserve requirements via economic capital models, with all data triangulated by conjoining different business perspectives, and forecast precisely, as best as can be done with the best resources, not powerpoints and spreadsheets, calculated for the coming months (short-term, <1 yr) and over the medium-term (>1 year/s) and they must be applied empirically top-down and bottom up and spread across all activities, business lines, and branches of the bank, to give both detailed guidance to all staff and holistic but precise in all directions for all senior management.
If a bank wants all that in firmest micro-detail it would require many time more volumes on top of the 20,000 or so pages of risk regulation already delivered! But, if the bank cannot translate such principles comprehensively, which obviously he and these experts' banks cannot, then they deserve to lose their banking licenses or get new management appointed!
I said, if you, your bank, and other banks, want the FSA to come down hard then why aren't you all saying so in consultative committees and to government. I'll tell you why, because you're trying to blame the FSA for your own failures at every level in implementing Basel II. It is not that the rules and guidance and principles are not clear and perfectly modulated and detailed insofar as any such human endeavour of such complexity has a right to expect to achieve at law, it is because it was so good that you failed to even read it, preferring the consultants' and audit firms' powerpoint slides, the comic-strip versions, and why that, because most of you so-called 'bankers' aren't; most of you haven't much of a clue, never been properly trained, don't know what a whole bank looks like, beyond your own little sordid bits of it. I said, you're so up your own and each other's end-of-year bonuses you can't take any responsibility for anything that is to do with the long term health and soundness of banking, nothing remunerative outside of your own personal income. Heads were turning, but few clapped as I called for brandies and cigars only to regret again for the millionth time that smoking is regulatory, legally, verboten!