With the backing of 82 year-old Paul Volcker at Obama’s side and a like-minded Mervyn King (a mere 61), he’s reshaping the operating conditions of the western world’s financial sector. The last time anything on this scale happened was 75 years ago, and then only in the US.
Far from taking his time, as might befit a man nearly 15 years past official retirement, de Larosiere has moved so fast he’s caught the financial sector napping. Before they knew it, they’ve been encircled in exactly the web that Sarkozy, a confidant of de Larosiere, has wanted ever since the meltdown. Soon the banks will be under the relentless scrutiny of a council of systemic surveillance sitting on top of three other organisations responsible for banking, insurance and markets. All these bodies will have the power to overrule national regulators. Done and dusted.
Some financial sector bodies are complaining – notably the insurance sector which, after all, had nothing to do with the meltdown. Their argument is that de Larosiere’s group didn’t listen, has acted too soon and many innocent banks are being punished. Some of this is transparently true, but all complaints will prove futile. The oldies think they know better and the kids have been grounded.
In this fait accompli, France’s pre-eminent central banker has acted true to form. Here’s the consummate performer behind closed doors. It was de Larosiere who, as MD of the IMF sorted out the Latin American crisis in 1982 by summoning the creditor nations to New York and putting a gun to their heads. They either found $6.5bn to bail out Mexico and Argentina or they could forget about any IMF loans in the future. They found it.
After a further five years at Banque de France, he was parachuted into another crisis at the European Bank for Reconstruction and Development. Acting like a company doctor, he scrapped the executive dining room, cancelled business-class travel throughout Europe and quadrupled the loan book. In other words he turned it back into a bank for reconstruction and development.
For this latest job, Sarkozy wanted a trouble-shooting banker and so did the Americans who know and like de Larosiere as a member of the Washington-based group Thirty, the high-level think tank on economic and monetary affairs. Certainly nobody wanted a slow-moving Bank for International Settlements kind of guy.
From his extra-curricular interests, you might take de Larosiere for a lofty intellectual rather than a central banker in a hard hat. His private passions are classical music, 18th century French history and 19th century French literature. But he’s also a student of the robust theology of the late Henri-Marie Cardinal de Lubac, the Jesuit priest who refused to toe the Vatican line and was not afraid to say so.
Like the cardinal, France’s top central banker has thought his way through to his present hard-line position on regulation, greatly influencing the rest of the club. Lately, the mood among regulators has changed right across the regulatory spectrum. As Alexander Justham, director of the markets division of the FSA, observed recently, a society bleeding savings, investments and trust now wants and expects their banks to serve them, not crucify them: “[Bankers] should do the right thing and if you don’t you run the risk of having your head put on a spike.”
That’s the sort of thing Jacques de Larosiere has been saying for some time. He believes the days of self-regulation are dead and buried for ever.