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BOE’s Haldane Tells Occupy Libor Furor Prompted Change

Bank of England official Andrew Haldane said technological innovation promises to transform banking in the same way that it has revolutionized the music industry and online selling.

As technology changed industries such as music, so it could for finance, which is, “if nothing else, an information business,” Haldane said in a speech in London yesterday. He said such innovation would counter the history of technological advances in banking, which so far haven’t cut the cost of intermediation as dramatically as in other industries.

Haldane, the central bank’s executive director for financial stability, has often courted controversy in his comments on the banking industry. He told lawmakers last month that institutions should defer bonus payouts for staff for as many as 10 years, and that progress on remuneration so far is still short of what is needed.

“Might redemption for the financial services sector lie in technology and IT?” Haldane said. “If EBay has solved this for second-hand goods, why not use this self-same business model to solve the market for loans or payments. My optimistic conclusion is that there are already early signs of this.”

For example, payment systems have not “established a reputation for being especially innovative,” though “technology companies are seeing potential to spread wings” in the sector, Haldane said. Chancellor of the Exchequer George Osborne’s announcement this week on opening payment systems and encouraging new entrants will also encourage reform, he said.

Consumer Finance

In addition, peer-to-peer lending is expanding its “breadth and depth” in areas such as consumer finance, small-and medium-sized enterprise lending, foreign exchange and crowd-funding, Haldane said.

Improved data flow from financial activity will also help regulators set policy to encourage stability by enabling a “real-time” map and making feasible a “Star Trek room” where officials can spot problems, he said.

“The clatter caused by the failure of Lehman Brothers in 2008 was that no one globally could join the dots,” across the financial system, he said. “There is a tidal wave of financial data about to arrive on the doorstep of regulators, and therein lies some real opportunities.”

Haldane spoke at an event organized by Intellect, a trade association for the U.K. technology industry.

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