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Has anything changed at all in the culture of banking? Both the Chairman and the Chief Executive of Barclays Bank have resigned following the revelations that traders at Barclay Capital, the bank’s investment arm, and other banks dishonestly manipulated LIBOR—the London Inter-Bank Offer Rate—and EURIBOR, the trans-European equivalent. They are the key interest rates paid between banks which borrow from each other, and which affect mortgage and credit card interest payments. Are sections of banking still being run by a venal materialism?
So long as banks pay huge salaries and bonuses, they will inevitably attract some staff whose prime motive is to make huge amounts of money. Yet only a small number of people were involved in the LIBOR scandal. As one analyst put it, ‘There are probably 300 rotten apples that have spoilt it for everyone.’ Some have already been dismissed. Yet there has been a culture in banks that has allowed the rotten apples to operate without impunity.
Sony Kapoor, founder of the financial think-tank Re-Define, was reported in The Times (30 June) as saying: ‘There’s a subculture of ruthless competition within peer groups to screw the little guy, maximise bonuses and bend the rules.’ Their behaviour has destroyed a reputation for probity built by the banks and the City of London over centuries.
Banking at its best is essentially a public service. In the 19th century, the big banks were run by philanthrocapitalists who, in the immortal words of Private Eye editor Ian Hislop, ‘examined their consciences and got out their cheque books’. They provided social housing and many other benefits to society.
Several things need to happen to restore integrity to financial services, and the public’s trust that goes with it.
Firstly, banks need to recruit staff on the basis of their integrity and character, not just their compliance or cleverness. This is also set by the tone at the top of organisations. The City Values Forum, launched by the Lord Mayor of London last year and with the involvement of Cass Business School in the City, has been emphasising this and working on it.
Second, there needs to be prosecutions against dishonesty and wrongdoing by city traders, just as there were against the rioters who stole goods and burnt buildings in last year’s summer of shame. Badly behaving bankers need to be equally shamed. Both groups have been involved in theft. Yet there seems to be ‘one rule for them and one rule of us.’ Natural justice and fairness in society dictates otherwise. This is not just an issue of punishment so much as one of sending a strong signal that society is serious in protecting the rest of us affected by such dishonesty.
Fining banks is simply not enough: someone else pays the price, including tax payers. At the very least, the perpetrators themselves need to be fined individually. Peter Vicary-Smith, chief executive of the consumer watchdog Which?, says that ‘Banks and bankers will continue to be seen as untouchable unless individuals are held to account for their actions and the culture of banking is changed for good.’ While rioters have been sent to prison, equally those who deliberately cheat in a way that affects mortgages and undermines our economy should be too.
Third, the gap between highest and lowest paid inside business organisations as a whole, including banking, needs to narrow. The OECD says that the gap ratio has grown faster in the UK since the 1980s than anywhere else in the world. Boardroom reward has got out of control and this fuels anger in society. A ‘shareholder Spring’ has led to a backlash against this, leading to several boardroom resignations. Remuneration committees have had to take note.
Fourth, the feminine influence of prudence and responsibility in financial affairs needs to be greatly increased in the leadership of banks, to counter a male macho testosterone-led culture. In Iceland, women have successfully led the country out of economic collapse over the last three years. In Bangladesh, women showed that they were the responsible borrowers from the Grameen Bank which gave rise to the global microcredit movement. In India, as The New York Times reported two years ago, women are often running the show. One in five of India’s big bank, insurance and money-management companies is headed by a woman. They include the Indian arms of HSBC, JPMorgan Chase, Royal Bank of Scotland, UBS, Fidelity International and Icici Bank, all run by women. They work in an environment that doesn’t require them to be ‘one of the boys’, wrote the paper.
Fifth, banks customers need to be able switch their accounts to other banks easily if they don’t like the way their current bank is operating. The Move Your Money campaign advocates this. In the long run, those banks that take a hit on their reputation will lose new customers anyway.
Finally, and perhaps above all, in order to restore the public’s trust in financial services, what is most needed is conscience-based decision-making--the ability to choose right from wrong. Banking needs to rediscover its moral compass. Adam Smith, the father of capitalism, described the conscience as 'the man within' or 'the Vice-Regent of the Deity'. This should also include what Professor Roger Steare of Cass Business School calls ‘the emotionally-intelligent part of conscience, i.e. empathy and love. This also gives us humility.’
After all, the great bankers of the 19th century and earlier, including Barclays, founded by two Quakers in 1690, were driven by a strong sense of social conscience. That culture of public service, which is at the heart of good banking, can be restored.
Michael Smith is Head of Business Programmes at Initiatives of Change UK and author of ‘Trust and Integrity in the Global Economy’. He is an organiser of the annual conference on ‘Trust and Integrity in the Global Economy’ in Caux, Switzerland, 17 to 23 July.
NOTE: Individuals of many cultures, nationalities, religions, and beliefs are actively involved with Initiatives of Change. These commentaries represent the views of the writer and not necessarily those of Initiatives of Change as a whole.
In addition to Michael Smith's points, Paul Moore, former Head of Group Regulatory Risk at Halifax Bank of Scotland, writes:
We very much need to look at banning proprietary trading in investment banks. This was something that the Independent Commission on Banking did not look at. Proprietary trading is not banking business. It is tantamount to market manipulation through the abuse of a dominant, anti-competitive position that investment banks hold in information (often obtained through abusing conflicts of interest), mathematics and computer science. I suggest the All Party Finance Committee asks for anonymous evidence from day traders and they will be able to show Members exactly when the market is being manipulated by the big players. Proprietary trading also creates artificial liquidity in the markets which makes people think that shares and other financial instruments are nothing to do with real people’s lives but only 'chips' in a casino. Ultimately this is bad for society – even if it does generate tax revenue for the Exchequer.
If a bank wants to conduct this sort of business it should be run and regulated in the same way as any other fund management business and the investment risk should always fall on the investor or the lender and there should be limits to the amount of leverage that the fund can use i.e. it needs to operate and to be regulated like a Hedge Fund.
I would also like to make a much bigger societal point that comes out of the banking crisis and other major corporate failures and wrongdoing. The prevalent culture of 'Me, More, Now' has failed. The love of money and me and our apparent addiction to the material signs of wealth are fickle measures of success and well-being. They imprison us. The ruthless pursuit of short term profit, fed by our consumerism and lust for 'stuff', has made slaves of us all. Our modern day slave masters satisfy their own greed and encourage us to do the same while the majority of us suffer. An unelected super-rich elite one per cent rule the day. We no longer live in a democracy but in a 'corporatocracy'. We need to free the world from this slavery caused by the culture of greed and the terrible damage it does to others, ourselves and our beautiful planet. If you are interested in doing something about this, take a look at www.newwilberforce.co.uk where, in a spirit of Love, Truth, Justice and Freedom, we are seeking to 'Connect With Millions; Share Our Experience Strength and Hope; And Build A Better World.'
Who we are: Initiatives of Change (IofC) is a world-wide movement of people of diverse cultures and backgrounds, who are committed to the transformation of society through changes in human motives and behaviour, starting with their own.
Purpose: We work to inspire, equip and connect people to address world needs, starting with themselves, in the areas of trustbuilding, ethical leadership and sustainable living.