Memorandum from Dr Damian Tambini,
POLIS/The London School of Economics
I am grateful for the opportunity to respond
to the Inquiry. My response focuses on only one of the points
raised by the Committee:
1.11 The role of the media in financial stability
and whether financial journalists should operate under any form
of reporting restrictions during banking crises
As the author of a recent report on financial
journalism by POLIS: a media and society Think Tank based at the
London School of Economics I have conducted over 30 interviews
with some of the UK's leading financial journalists and editors
in recent months. This research asked financial journalists about
how they approach their professional responsibilities as journalists
and what challenges they face in carrying them out. I have also
interviewed journalists, regulators, PR professionals and other
interested parties in and outside the UK. The research "What
are Financial Journalists For?" was published in November
2008 and is available at: http://www.polismedia.org/workingpapers.aspx
Interviewees were drawn from the established
news media but also elsewhere in the media including the new media.
On the basis of this research I argue that the
news media may contribute to financial stability if information
was more selectively released, but that this may not be a good
thing. I also argue that self-regulation rather than new legal
obligations on journalists is likely to be an effective solution
in this case.
Based on a review of the literature and these
expert interviews, I think it is reasonable to conclude that:
A. The Role of the Media in financial stability
Markets depend on information. The established
news mediaamong other intermediariesfoster the flow
of information about the market, and about particular companies,
to investors, citizens and consumers, thus enabling them to make
informed decisions. By applying well established journalistic
strategies of verification, media organizations help ensure that
information is as accurate as possible given time, regulatory
and resource constraints. By ensuring a competitive approach to
news and information provision, and by reference to established
professional ethics, the established media help ensure that information
is provided as rapidly as possible, and that that information
is of a high quality. From the point of view of stability, this
may not always be a good thing: stability may be better served
if information is selectively leaked to a limited number of market
participants. The impact of information on prices may create the
potential for shocks and panics therefore, but whilst a staged,
leaky approach to information provision might serve "stability"
better, it would be unjust.
Journalism is undergoing radical change currently
however which impacts the ethical and regulatory structures that
secure the reliability of news and information, and the ability
of news organizations to invest the necessary resources in verification.
Alongside what I refer to as the "established news media"
new intermediaries provide financial and business news and information
whilst operating outside of the legal and ethical framework of
journalism. Despite these radical changes, the Polis research
supports the following views:
1. Media reporting can and does move markets.
The regulatory framework for news media recognizes that media
reports can have an impact on market sentiment in general and
on prices of particular securities, and this is supported by ample
2. There is (therefore) ample scope for market
abuse by the media. Recent scandals such as the "City Slickers"
case in the UK and the Foster Winans case in the US show that
it is possible for certain journalists to gain advantage by market
manipulation, including through rumor fueled short selling. Research
tends to support the view that in the UK and the US such practices
are rare, and the established media tend to act as a brake rather
than a lubricant on rumor driven runs (at least when these are
based on false rumors).
3. Media may reinforce volatility. It is acknowledged
in studies of the behavior of news journalists that they may be
subject to herd mentality; tending to agree among themselves on
what "the story" is in response to an announcement and
in the case of running stories seeking news that fits with a particular
notion of "the story". These tendencies may reinforce
herd and momentum market behaviors but there is little solid research
evidence on this. By volume, it is likely that the impact of media
reporting on the majority of investment decisions is marginal.
Most high volume institutional investors do not rely on established
news media for their information.
4. News Media can act as a conduit for unfounded
rumors. Whilst all media outlets do have established procedures
for verifying news stories, they also provide tips and rumors
in certain columns and broadcast forms (such as analyst quotes).
Media are changing: the division between fact and comment may
be becoming less obvious to readersbut currently at least,
audiences (as with the HBOS rumors of March 08) turn to the established
news brands in order to verify stories.
5. The legal framework on market abuse applies
to journalists as it does to anyone, but there are jurisdiction
problems and enforcement is patchy. Journalists do enjoy certain
immunities from the regulatory framework, and there is evidence
that regulators are reluctant to engage with them. In the UK journalists
that offer investment recommendations are exempt from the conflict
of interest disclosure requirements that apply to others, and
theydue to informal arrangements- are less likely to be
required to reveal their sources than others.
6. The effectiveness of the ethical and self
regulatory framework operated by the PCC, and by individual media
outlets is uncertain. The numbers of complaints against the PCC
code articles on financial journalism is extremely low. And there
is nothing in the existing code, or professional practices, that
deals with the issue of the macro impact of financial reporting
on general market sentiment.
In conclusion, it is evident that the news media
perform a crucial role in bringing information to the market:
there is no conclusive evidence that the media as a whole or in
specific instances reinforce volatility, but there is a possibility
that certain newsgathering behaviors might encourage a herd mentality
in the market. The news media, and professional reflection and
self-regulation of journalists are focused on verification of
information and not on the consequences of publication, or processes
of selection or agenda setting.
B. Should journalists operate under any form
of reporting restrictions during banking crises?
1. The principle of press freedom is very
importantthough of course journalists operate under many
restrictions. The European standard according to the ECHR is that
such restrictions have to be necessary in a democratic society
and in accordance with law. Restrictions would have to meet that
2. Existing restrictions are in place relating
to market abuse (as well as general restrictions on libel, intellectual
property and so forth).
3. Journalists tend to be well aware of
restrictions and operate within them.
4. Rules that apply "to journalists"
"during crises" raise the obvious question of who decides
who is doing journalism, when is a banking crisis underway and
so forth. Definitional problems are becoming more pronounced because
the activity of journalism is no longer defined by a technology
of delivery, and the technology of delivery is no longer a guarantee
of a particular self-regulatory framework.
5. The more convincing arguments against
reporting restrictions are not those based on principle (eg "the
principle of freedom of the press") but those based on the
impracticality of reporting restrictions and their likely perverse
consequences. Even if there were restrictions, information and
rumor would circulate but more of the audience would turn to unregulated
platforms that do not profess to be doing "journalism"
and which do not exhibit any form of self restraint. There are
advantages of getting information into the market as quickly as
possibly and serious disadvantages if barriers are introduced.
From the point of view of financial stability, artificial blocks
and bottlenecks in the provision of information may exacerbate
financial shocks and, further introduce obvious inequalities and
mistrust in access to trusted information. These are likely to
have political as well as economic consequences.
In conclusion, new legal restrictions on reporting
are likely to do more harm than good. But the Committee could
encourage smarter regulation and encourage a new approach to self-regulation.
At a time of intenseperhaps unprecedentedfinancial
pressure on all established media (broadcasting and the press)
it is unlikely that news providers will prioritize ethical and
professional reflection, so they should be incentivized and encouraged
to do so. This is always most effectively done if there is the
possibility of legislation lurking in the background. Much can
be done to encourage responsible financial and business journalism
through ensuring access to information, protection of sources
and so forth, but the quid pro quo for this should be a genuine
attempt to develop a code of responsible conduct that reflects
on the macroeconomic impact of reporting styles.
More research is necessary to better understand
how business journalists are responding to current changes and
challenges, but it is already clear that business and financial
journalists should be encouraged to develop their ethical and
professional practices through self-regulation, and it is likely
that new legal restrictions would hinder journalists in their
important work and not result in improved financial stability.
"Free speech and a free press not only
make abuses of government powers less likely, they also enhance
the likelihood that people's basic social needs will be met",
... "Improvements in information and the rules governing
its dissemination can reduce the scope for these abuses in both
markets and in political processes. Many of the decisions taken
in the political arena have economic consequences. Also, better
and timelier information results in better, more efficient resource
Joe Stiglitz In: The Right to Tell. World Bank, 2002.
53 Dr Tambini is a member of the Communications Consumer
Panel. This submission represents a purely personal view and does
not represent a Consumer Panel or Ofcom view. Back