Can banks be trusted?

So yesterday I was at this big debate about the state of trust in banking.

First what is trust?

Trust is a belief in, faith and confidence in something.

Often it’s used in religious terminology – in God we Trust – and it used to be that we trusted our politicians and banks but that has been destroyed in recent years, especially in the UK where an expenses scandal thanks to freedom of information almost brought down a government. Combine this with the crisis of confidence in the financial system, and you could believe there is no longer any trust left in our stable institutions of the past.

So Hotwire did this survey (2MB PDF) across 164 professionals working in financial firms to see what they thought about rebuilding trust in banks, a theme of this year’s SIBOS, and also interviewed many of the leading observers of the industry.

What they found is the following key results:

• Over 67 per cent of respondents agreed that their levels of confidence and trust dropped when thinking about how banks’ leadership teams handled the financial crisis; 62 per cent said their confidence and trust levels plummeted in politicians, followed by the Financial Services Authority at over 56 per cent. The Bank of England fared best, with just over 29 per cent seeing their trust in the institution go down whilst over 23 per cent say their trust and confidence had gone up.
• When asked: would regulation be the key to restore trust? Nearly 60 per cent disagreed with 1 in 4 of those disagreeing strongly. Only 21 per cent agree that regulation will be enough to restore confidence and pride in the UK banking industry.
• When asked: would greater transparency restore trust? just over a third (34 per cent) agreed, whilst 38 per cent believe that greater transparency is not a good thing and some privacy is necessary for the industry to operate effectively. 28 per cent went one step further, believing that greater transparency will encourage greater scrutiny which will further undermine confidence.
• With regards to media coverage of the banking sector, 65 per cent thought that the media ‘plays an active role in fuelling and encouraging negative sentiment towards the sector’. Only 7 per cent thought that ‘generally, the media provides a positive view of the industry’ and 28 per cent believe that the ‘media tends to give a balanced view of the industry’.
• Only 3 per cent thought that the industry had done a good job at communicating their dual responsibilities to shareholders and customers?
• 58 percent think that corporate communication is key to improving reputation.

With this backdrop, the Institute of Ideas had a debate about this report, with panellists including:

• Rob Killick, who represents the Institute of Ideas Economy Forum and is author of UK After the Recession;
• Annie Shaw, a highly respected finance journalist for the Money Matters section for the Daily Express, former editor of the Sunday Telegraph's property section and financial agony aunt for the Independent on Sunday; and
• John Penman, head of communications for Lloyds Banking Group - Insurance and Scotland.

Rob claimed it was a myth that the banks were responsible for this crisis due to an appetite for risk or being greedy. He claimed it was also a myth to believe that the government were addressing the issues for that reason.

He claimed that the credit bubble in the economy was caused by governments supporting the banks to increase credit to avoid economic stagnation, and hide unemployment and a weaker economy beforehand.

Equally, bankers weren’t going out and saying “let’s take risks”, instead they were trying to spread and manage risks. We may say that the way this was done was stupid, but that is different to saying that banks were taking idiotic risks fuelled by greed. The issue is that it was done badly.

The problem Rob has is that the policy responses are now based on governments who believe that bankers were fuelled by greed to take risks, and therefore all the policy responses are ill-conceived and incorrect.

Annie, the financial journalist, didn’t really buy into that statement, and launched a fairly withering attack upon the banking system.

She agreed that governments stood by because it got them off the hook of low pay and unemployment and economic stagnation by letting the banks run free, but hated the way banks became retailers peddling their financial drugs to consumers. The result she saw was that consumers were treating banking as just another retail commodity, looking for the cheapest loan and lowest mortgage rates, rather than worrying about affordability and capability. These latter areas are where prudent bankers were meant to restrain, and that’s where they failed.

Equally, Rob’s point about banks not taking risks but looking to offset and spread risk she thought was baloney. Rather than offsetting risk, bankers were just ducking and diving, looking for a way to make a buck, and the idea of bankers being guiltless was just cloud cuckoo land.

Finally, as the research thought corporate communications may make a difference, Annie asked: what difference? What message can corporate communication put across if it’s just putting lipstick on the pig? Banks need to sort out the internal house first, and their rotten areas of peddling and retailing, before they can really communicate something positive.

John from Lloyds Banking Group, who had spent most of his life as a journalist, said he was wearing his suit of armour for this session and tried to respond to all the chatter.

He lamented the fact that the industry cannot win. For example, banks are being told to lend more but then irrational lending and peddling financial drugs is what caused this crisis so they should avoid this shouldn’t they?

He then summarised five key areas where corporate communications should and could play a part:

• Transparency does not mean trust: for example, the freedom of information act led to the expenses scandal that almost destroyed the previous government, so transparency can actually create suspicion
• Explanation is they key: banks need to explain their actions and why they are doing things; for example, when Lloyds layoff staff it is through efficiency as the two banks of HBOS and Lloyds TSB merge, whereas when RBS layoff staff, it is because they are downsizing (nice dig John!)
• Be honest: the key of transparency and explanation is to be honest and, if you are caught selling a pup like PPI, then put your hands up; interestingly, John then said that 1 in 4 consumers who ask for their PPI payments to be reimbursed turn out to never have had a PPI product from the bank, e.g. they’re just trying it on (interesting)
• Integrate the response: if making a communication, don’t just send out in isolation but make related announcements together
• Communications is a function: this is key as comms cannot fix the business issues; the business needs to get it right and then comms can get the messages out there regarding what’s working well

As chair of the session, I then got to ask a range of questions and the audience did too. The gist of the various questions focused upon whether there is any way for banks to regain trust. As providers of finance historically they had a prudential supervision over finance in the community. It is that prudential oversight that was lost because banks, as retailers, lost their moral compass. Losing their moral compass led to the loss of trust and so the moral compass must be reset first if the industry is to rebuild trust.

Finally, I summarised the whole session with the arrogance of banks before the crisis hit being best illustrated by the leadership at Royal Bank of Scotland persuading the Scottish Parliament to rename the Capital City Fredburgh, after Sir Fred Goodwin.

Then the crisis hit and the industry has not responded well, with poorly co-ordinated responses. Thos responses are now improving as banks work with the BBA to provide coordinated responses to the government, such as the recent lending group review on bank policies and 17-step plan that came out of that.

However, what has really surprised me is the lack of use of social media in rebuilding trust. The fact that banks can use blogs, Facebook and Twitter to engage in a dialogue and conversation with people, which would be far better at rebuilding trust than sending out some formalised corporate comms statement.

This has been proven over and over by those who use such media, but banks just don’t get it.

Why?

Well, the Lending Club wrote a great blog on this area and gave eight reasons:

• Banks Try to Build Community but Their Content is BO-RING!
• Banks Try to Market Themselves but Their Site is Ugly
• Banks Try to Serve Their Customers, Who Don’t Even Know the Bank is Online
• Banks Try to be Transparent but Have No Strategy or Permission
• Banks Try to Find Out What Their Customers Want but Are Slow to Respond
• Banks Do Not Understand Community Engagement
• Innovation Is Just Not Coming From Existing Banks
• Banks Don’t Understand How Social Media Works

Net:net is that if banks want to be trusted, it’s not a case of being transparent or having a great corporate comms department, it’s about being open and honest.

To sum it up:

• When banks stop selling products that hit customers with high fees and charges over time, and start advising customers of products proactively that would give them better returns, then we will trust them.
• When banks start engaging customers in an open debate and dialogue, whether online or in branch, and stop ducking the questions that matter, then they will be trusted.
• When banks work together to show how they are addressing the issues the media, and therefore the public, think are rotten such as bonuses, fees, charges, lending and so forth, then they will be trusted.
• When banks provide leadership in their economy and country, by showing clearly what they are doing to rectify the rottenness that most feel exists under their corporate veneer, then they will be trusted.

Until then, the media and public will continue their attacks and bankers will continue to dodge them.

This article links to four others this week, in a series challenging the future of banking.  The series of articles are as follows:

1. Why banks and socials agree to disagree
2. Where banks and socials can agree
3. If banks are like oil, build better vehicles
4. So is there a chance of getting rid of banks?
5. Can banks be trusted?