Commentary: Sensible, but not enough

The Corrigan plan for tightening up international banking regulation to avoid a repeat of the BCCI affair is sound, commonsense stuff. But do not get too excited about the prospects for stopping serious fraud from now on. There are areas where even the supervisors in London and New York feel they do not yet have adequate legal backing, and it will take time to get it.

For example, the Bank of England has enough powers under the Banking Act to implement the proposed minimum standards. But it would also like to be able to block the establishment of banks or branches with unacceptable corporate structures.

At the moment, if there is nothing wrong with a bank, its shareholders or its managers but the corporate structure looks suspect, the Bank can do very little. We should hear more about this in the Bank's reply today to the Commons Treasury select committee report on BCCI.

Another missing element is a duty for auditors to report suspected fraud. At present, they have a right to report fraud, an important distinction. This is a change the Treasury committee recommended, and to which the Bank has shown some sympathy, but it would cause uproar among accountants.

There are other reasons for scepticism about the immediate impact of efforts to clear up after BCCI. The uneven record in supervision of the 12 signatories to the Corrigan agreement does not inspire confidence in a plan whose basis is to pressure other countries outside the main industrial blocs to improve their supervision.

And there is the old problem of shutting the stable door too late. It is a fair bet that improvements in supervision will miss the problems that lead to the next scandal. The Johnson Matthey Bankers collapse led to a new banking act, but it was not enough to catch BCCI.