Banking, your number’s up

It has been discredited. Only a cultural overhaul can rescue the industry’s reputation – and do right by customers

Wednesday 12 November 2014 22:54

Here we are again as far as banking is concerned: another scandal, more appalling revelations of arrogance and cynical behaviour – and fines running into billions. We’ve only just had the Libor affair, in which traders banded together to fix one of the world’s most crucial interest rates, affecting the lives of millions. Now, a series of banks have been hit with penalties amounting to £2.6bn for rigging the foreign exchange markets. They will soon be joined by Barclays as it negotiates the size of its settlement with the regulators.

Two of the guilty banks – HSBC and Royal Bank of Scotland – are British, and the latter is controlled by the taxpayer. While the forex markets do not touch as many people directly in the same way as Libor, they do play a key role in setting the values of foreign investments and the prices companies pay in their overseas dealings. None of that bothered the City traders concerned. Indeed what’s remarkable is how they formed small groups and gave themselves names like “the 3 musketeers”, “the A-team” and “1 dream, 1 team.” They sent each other messages, laced with four-letter language, that displayed a total contempt for their colleagues, clients and the rules. And for society at large.

There is a wider point here, that those involved were boastful and arrogant to a degree that blows a hole in any claims by the banks that their organisations are staffed with folk who, while earning large sums of money, do care about the wider population, and do possess social consciences. Not according to the evidence in the forex manipulation.

These are people who actually believe in the maxim, originally intended as irony, that “greed is good.” While their employers deserve opprobrium, their strutting nonchalance should alert everybody. Are the nicknames and the swagger much different from what we see on The Apprentice? Somewhere the City has lost its moral compass. Whether it’s the effect of bonuses or banks becoming too complex to manage and regulate – or both – the financial services industry is in urgent need of overhaul. We’ve had horrific examples of financial product mis-selling, then Libor, and now this.

The banks themselves have much to answer for. They’ve been happy, over the years, to collect the revenues earned by their employees (and to pay them bonuses as a reward). Now their bosses are suggesting that their organisations are too vast and their activities too convoluted and technical for them to understand what is going on. It’s true, they are huge. HSBC’s half-yearly results report occupied 293 pages; only five people in RBS are thought to have understood what was occurring in the bank’s name prior to its near-collapse, and one of those was not Fred Goodwin.

The constant refrain we’ve heard from banking is “too big to fail”. With hindsight that is a phrase that should never have been allowed to enter the lexicon – because it seems to have been interpreted by banks as giving them carte blanche to do as they please and to turn a blind eye or not bother to find out what their workers were doing. For their part, the authorities see it as a reason for treating banks kindly – for rescuing them when other businesses would be allowed to go to the wall. Now the Bank of England Governor, Mark Carney, has put in place a mechanism that he hopes will ensure such bailouts can be avoided – again not a safety valve that exists elsewhere.

The emphasis should be realigned, from “too big to fail” to “too big”. The banks can’t have it both ways. If they don’t know and don’t understand, they should; and if they can’t inform themselves, or won’t, then they ought to be dismantled and made smaller. We cannot go on with more episodes such as this. Banks must be brought into line, and urgently.

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