In March I wrote about the High Priest’s of finance just not getting what’s happened within their industry-see the 1st of March blog. Now 4 months later and as recent events at Barclays with the LIBOR rigging scandal or RBS shambles with a widespread payment systems failure highlight, with the ensuing denials and apologies from senior management, how unfit for purpose and in dire need of radical reform it remains after years of crisis since the banking collapses of 2007/8 in the UK with Northern Rock, a retail mortgage bank, first of many to fail.
Predictable reactions from politicians aside the reaction from the Bank of England’s Governor Mervyn King said on the BBC news on the 29th June “something has gone very wrong with the UK Banking Industry” regarding the manipulation of the LIBOR was vehement as imaginable calling for swift changes in remuneration, structural and cultural change and improved customer relations within the banking industry. The calm and tolerant attitude of the UK public has been admirable since millions were left without access to their funds and ability to make transactions with the RBS systems failure. In countries like Spain they’ve taken to the streets long ago to protest at their defunct and decrepit banks. Paul Tucker the deputy Governor described the LIBOR rigging as a cesspit.
The limited success of senior management in redeeming themselves is now provoking calls to go beyond the Vicker’s commission report of internal divisions to full scale separation of retail and investment banking operations. Many people are making similar demanding that banks are not too big to fail and simple enough to manage. They should be understood by regulators and be narrower focussed in their operations to avoid conflicts of interest. There should be much more competition. Those who fail should do without recourse to the public purse ever again. Gargantuan universal banks whose failure would cause systemic failure should be broken up. Senior management should faces criminal charges for criminal acts and the culture should be overhauled to reinforce respect for the law and for customers alike whether on the other side of a trade or the counter. A nefarious arrogant culture needs to disappear and only by removing the senior management of these large banking behemoths and their lieutenants will a new industry emerge with new entrants. In the UK whether it’s RBS Group, Barclays or Lloyds (which includes HBOS) should continue their disintegration and return to small efficient regional entities serving their local business and retail customers.
Limited Purpose Banking is a call being made for a return to core roles of matching borrowers and lenders with (working) payment systems and minimal, if any, leverage. Jim O’Neill, CEO of Goldman Sachs Asset Management appeared on BBC2’s flagship Newsnight special report on banking with a benign and sympathetic response to state owned banks, although cautious to their effectiveness. Between Lloyd’s Banking group and RBS this could easily be achieved as a decent return for the taxpayers is looking harder to achieve than first envisaged by selling these assets back in to private ownership. There’s a place for investment or merchant banking too in London, Leeds or Edinburgh but specialised, well-capitalised, regulated, operating through a clearing house with a wealthy or well diversified ownership themselves represented on the board by experienced executives and independent non-executive directors. However, large shareholders like the pension funds, wealthy managers and investment fund managers need to shake off many of the bankers’ cultural trappings too like the remuneration culture, share-buy backs or allowing and rewarding weak performance to continue for too long.
After a recent conversation with my city insider Clive who stressed that much had been done already regarding changes to bonus payments and staff reductions. However the repetitive nature of these banking calamities maintains the public perception of a thoroughly rotten industry. International reputational damage is being done to the City of London itself that threatens an important UK industry which supports many jobs, livelihoods and provides tax revenue for the Exchequer.
The reformed banking industry like reformed Church and State of the C.17th Britain needs a few puritanical zealous overseers to root out corruption and sleazy practises. More importantly the quicker it returns to servicing customers whether large corporations, smaller businesses or individuals with integrity and respect the better for everyone. The remedy of new entrants, new beliefs and standards from all levels of management with new regulators bodies upholding this new best practise would be most welcome. Maybe then the UK could emerge first from the world financial crisis as it emerged in the C.18th. Hope springs eternal from the current debt laden cesspit.
LDC