This was a letter sent to The Actuary on 12 September, but which they chose to publish neither in the magazine nor on the website.

Dear Sir

In response to the interview with Philip Booth in the September issue, I would just like to point out that the banks did not know during the 2007 financial crisis that they would be bailed out. The day before Alistair Darling announced a £500 billion rescue package in October 2008, shares in RBS fell by almost 40 per cent to a 15-year low, HBOS fell by over 40 per cent, Lloyds TSB dropped by 13 per cent and Barclays by 9 per cent precisely because a bailout was not assumed.

As regards how prudently financial institutions behaved before the changes in insurance regulation in the 1970s and 1980s, I would prefer to listen to the views of someone who was actually there. Frank Redington, in his submission to the Institute of Actuaries in 1981 entitled The Flock and the Sheep and Other Essays, says:

“We have no means now of telling how the profession would have emerged from what would have been the only real test of its collective character which it has had to endure in the last 100 years. When the curtain fell in 1939 the profession was not cutting a very brave figure. Valuation bases were too weak, the rate of bonus was some £5 too high and new business was being sold on prospects which were not achieved until 18 years later. A few reputable offices had their backs to the wall.

“The outcome, if the war had not interrupted the story, would probably have taught us a valuable lesson. As it is we have to conclude regretfully that the profession had not – and, I am sure, has not – learned how to live with its salemen’s promises. To put it another way, we are driving a powerful car but have not yet proved our ability to handle the brakes.”

Regulation was inevitable. The problem which remains is that financial institutions in many cases are too complicated in their current form to regulate effectively. As Robert Reich, former US Secretary of Labor, puts it when arguing for the need to split Wall Street banks, they are “too big to fail, too big to jail, too big to curtail”!

Yours faithfully
Nick Foster