Banking Woes

As the problems over LIBOR fixing and the resignation of the chairman of Barclays gets underway the challenge of banking culture comes under the spotlight yet again.  In fact it is wider than that as LIBOR is an international measurement and the fixing scandal has the scope to seriously damage the reputation of the City.

Having worked in a bank at Group level I experienced first hand the problems with banking culture, which eventually resulted in my taking redundancy at the same time as a number of my colleagues who were particularly identified for daring to challenge.  In fact they were only doing their jobs with the integrity that professionalism demands.

It particularly frustrates me when I hear the former executives of the banks complaining that it was not their fault but some market failure, which they could not have predicted and was outside of their control.  Really?  I beg to differ.  Stress testing is something that firms have always been required to do but to be told 'the models are correct'; I was faced with a wall of hostility when asking some very basic questions about risk management.  The FSA were present but I don't recall them challenging the risky strategy at the time.  Clearly a complete failure of prudential regulation.

I also sat in a dinner with bankers in 2000 where they continually talked about huge loans especially in the commercial sector where they wanted more and more.  The CEO committed to meeting their needs but when I said to him that loans eventually have to be repaid I was told that unlike a life company banks made money by lending money.   I think the fall out of the FSA's censure of the bank for imprudent lending practices certainly proves my point though the basis of the censure built up over many years before the regulator's investigation began.

The rewards at the top have certainly grown disproportionately and the distance between the executive and the staff creates a gulf that takes the eye off the normal practices of running a prudent rational organisation based around the expected norms of everyday banking operations to something that inevitably implodes with spectacular fall out.

The City needs to return to sense, rationality and reason where dictum meum pactum ('my word is my bond') becomes the norm again.

 

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