It is indeed true that we can make a case for prudential regulation of the financial markets. In theory we can at least. The bigger question, the one that all too rarely gets asked, is whether the prudential financial regulation we do get is worth having. The answer there isn’t so clear. Or, if I’m allowed to descend into opinion, it’s obvious that it isn’t.
Big financial institutions including Blackstone and Jupiter Asset Management have set strict caps on client lunches in the latest sign that the days of the City’s famously lavish wining and dining could be coming to an end.
The tradition of closing a deal over boozy lunches at expensive restaurants has been dying out for years, but a sweeping set of EU reforms known as Mifid II has forced firms to take further action so staff don’t step out of line.
As a result of the revamped rules Jupiter has recently told staff that they can splash no more than £50 on lunch with a client and can expense no more than £200 on each contact per year, sources told The Sunday Telegraph.
“That might sound like a lot, but if you’re hiring a private room and paying London prices, it adds up,” said one person affected by the stricter rules.
Another large investment firm, which did not want to be named, said it had also introduced a £50 cap so that it is not at risk of breaking the so-called “inducement” rules under Mifid II, which came into force in January.
Won’t that just kill off any possibility of another financial crisis? Rich people cannot spend more than £50 on a lunch with a business chum.
Do note that £50 in London isn’t a lot. You’re not all that far above Pret a Manger and a bottle of wine with that. Certainly not a Michelin starred tasting menu there.
But then this is the reality of the rules we get from that fount of bureaucracy, the European Union, isn’t it? Not that theoretically appropriate regulation to stop another financial crisis, but an insistence that bankers should not have better lunches than bureaucrats.
We could even have decent regulation. For example, we know that men are in general greater risk takers than women. So, if we have more women in finance then fewer risks will be taken, right? Nope, mixed gender environments lead both men and women into taking greater risks. Mixed gender environments are thus more risky than single sex. So, if we want to reduce risk taking we should throw either the men or the women out of finance.
Not what we’re going to do of course but it would actually reduce risk. Instead we get a limitation on lunch bills. My, aren’t we the lucky ones to be regulated so well?
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How on earth can you spin out fifty-quid over a four-hour lunchtime session?
4 pints and a bag of crisps each?
The EU's premise, as with so much of regulation, is that an unelected foreigner who will pay no price for deciding wrong knows better than the British banker. In fact, the City sprung for those lavish lunches not because it was trying to make pound notes go away, but because it thought it was buying something; probably, loyalty of a client who came to realize that this firm treated him very well.
In short, the banker knows his business and the regulator does not. The regulator only knows that large sums of money vanish during sporadic financial crises, and the best way to minister to large losses is to look for budget items that are large (executive salaries) and seem large (lavish lunches).
If a lunch in town really costs fifty quid, then the other stricture ("expense no more than £200 on each contact per year") means you cannot touch base with any client in a social, satisfying way more than four times a year. That might cost you his business. Maybe not so much in Brussels, where these regulations are written. What if Britain struck out on its own?!
I recognise in this the continental tradition that everything must be legislated for to be legal, in opposition to the British system that if something is *not* legislated for it is automatically legal. It's that problem with negatives that I mentioned elsewhere.
The next step is that of activist American government, in which every human endeavor is either illegal or paid for with tax dollars.
A clear point of many such rules is to stop people from enjoying themselves, especially in a manner that the regulators themselves can't readily enjoy themselves. A couple of decades ago, for example, a signifiant tax was slapped on the purchase of new boats: a big enough bite to hammer the boat building industry, often filled with skilled blue collar types who were suddenly without jobs. So the tax was eventually repealed, though I'm sure plenty of Democratic politicians still regret that some rich people were happily buying boats again and enjoying themselves while using them.
Hold on a minute - this is a great idea. No EU official may accept a lunch worth more than €50, and not more than €200 from the same organisation in one year.
That's the lobbying problem sorted then.
Don't forget breakfast, dinner and afternoon tea is still available to the lobbyists.