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The High Priests of Banking

Talking about the St Paul’s protesters yesterday, you do wonder if they maybe have a good point or two to make.

Like their American counterparts, I’m sure they do but unfortunately it’s all a bit loose and airy-fairy, with a mixture of happy-clappy hippies, anarchistic anti-capitalists and an articulate few who can say it’s all about corporate greed.

Trouble is that’s too loose and unfocused to be an agenda for change that will work.

What’s needed is a singular objective such as: tie every corporate action to something that delivers benefits to society, or something like that.

A method whereby every transaction, every commercial movement, every electronic transmission submits a direct benefit to communities, citizens and taxpayers.

It doesn’t have to be in a tax form – it could be committing staff time to community projects – but it has to be allied, linked and integrated into commerce directly and with transparency.

Anyways, that’s not my agenda.

My agenda is banking and what needs to change there, and it was interesting talking with bankers yesterday about St Paul’s and other matters, in that the subject of religion came up several times.

Morals, ethics and religious focus is a mantra that’s been around a while now.

It first came up for me when I presented at Gresham College a couple of years ago.

At the time, there was this big debate about much of banking being ‘socially useless’, and how to turn this into something socially useful.

Various banks made commentary about this theme, and it was interesting that the two most outspoken leaders were both lay preachers: Sir Stephen Green, Chairman of HSBC at the time, and Ken Costa, former Chairman of Lazard International.

Back in 2009, both were talking about the industry losing its moral compass and how it was requisite to bring that bank.

The latter is now very active in making that happen by promoting an ethical code to the City, after leaving Lazards in March this year.

The issue for Costa is one of faith, as he is very active in the Church.

This is why he’s penned several articles about faith in commerce, with the latest in the weekend Telegraph saying that the City must rediscover its morality.

In the article, he states that although he believes that free market are the best way to create growth and jobs, boards and shareholders must have a better understanding of what constitutes real value.

“The present duty – on all boards to maximise shareholder value as the sole criteria for satisfying the return to shareholders – cannot continue.  I am aware that this is a big change that will need detailed discussion, but we need to start with big ideas.

“For some time and particularly during the exuberant irrationality of the last few decades, the market economy has shifted from its moral foundations with disastrous consequences. I cannot recall when public feeling worldwide has run so high, and even if only a minority takes its anger on to the streets, no one should imagine that the majority is indifferent to their cause.”

Mr. Costa should know what he’s talking about as he’s been appointed by St Paul’s to negotiate with the Occupy London Stock Exchange (#olse) group to see how to create an ethical corporate agenda for change.

He’s actually supported by a large group of people called: The City.

It may be surprising to some that the St Paul’s Institute ran research that was about to be published as the protesters moved in, which discovered most City workers believe inequality is a real issue.

The survey interviewed 515 financial professionals during August and September, and found that 75% thought that the wealth divide is too great and two-thirds believe that bankers are paid too much.

Interestingly, over half stated that deregulation of the financial markets had led to unethical behaviour (you can download the report if interested).

And maybe there’s the point.

Historically, banks have had a religious backbone.

For example, in my meeting yesterday were former directors of Barclays Bank and Barings Bank.  Both said they started each day with “Director’s Prayers”, with a salutation to God each morning as a group.

That backbone has been lost since the Big Bang, they claimed (October 1986).

One of them said that the City would fall apart if you practiced what God preaches.

When queried, he clarified to say that you buy when you think the seller is an idiot and you sell hoping that the buyer is one.  That’s how to make money in the City, and that’s where the ethos breaks down.

Does this mean that we all have to move to Sharia rule?

No.

But it does mean a change of thinking, a return to grass roots and a way of looking forward with more certainty.

This was the core of Bob Diamond’s speech to the BBC Today Lecture last week.

Bob Diamond is the CEO of Barclays Bank and, in a lengthy speech, he focused upon trying to answer the question as to how bankers can become “good citizens” again.

“First, we have to build a better understanding of how businesses and banks work together to generate economic growth; second, we have to accept responsibility for what has gone wrong; finally, most importantly, we have to use the lessons learned to become better and more effective citizens.”

He feels that banks have done a poor job of explaining how they can be ‘socially useful’ and makes clear that this is something that needs to be explained.  He goes on to explain that a banks role is to make it easy for companies and governments to access capital by establishing a large consistent market of buyers and sellers.

“To do this they put capital at risk in order to discover what the market is willing to pay.  When banks do this well, interest rates are lower. If interest rates are lower, government and business borrowing costs less.  Without this, the result is clear – an increased cost of borrowing, higher taxes, lower public spending, slower economic growth and higher unemployment.  Providing this kind of support to clients requires banks to take risk but this is not speculative trading, so it bothers me when these activities are caricatured as gambling.

“These activities serve a social purpose and meet a real client need whether they are carried out on behalf of governments, pension funds businesses or individuals.”

 Critically, he makes the point that just as bankers caused the crisis they can also put it right.

“First, it's about how we behave, especially with our customers and clients; second, it's about what we do, and in particular how we help those customers and clients create jobs and economic growth; and third, it's about how we contribute to the communities we serve in many other ways.”

It’s a good speech – although some critiqued it as just being platitudes, motherhoods and apple pie – but as Bob says at the end:

“To the question ‘can banks be good citizens?’ the answer must be ‘yes’. But I'm mindful of what was said to me three years ago: ‘Bob, think about the fact that no-one will believe you.’  We're in the early stages of working to restore trust.  I'd like to be able to say we're achieving that, but I know that for you, seeing is believing.   You may not be able to see what's different today, but over time I very much hope you will see that and more.”

And note, he doesn’t use the words religion, ethics or morals once in this speech.

It’s not a question of religion.

It’s a question of culture.

“Culture is difficult to define, I think it's even more difficult to mandate – but for me the evidence of culture is how people behave when no-one is watching.  Our culture must be one where the interests of customers and clients are at the very heart of every decision we make; where we all act with trust and integrity.”

Damn right.

And I’ll be watching to see just who makes decisions with trust and integrity.

I guarantee that under these definitions, it isn’t Goldman Sachs.

Lloyd Blankfein on the one hand claims that their bank is doing "God's Work" whilst, on the other, when asked by Senator Carl Levin at an SEC hearing last year: “Do you think (investors) care that something is a piece of crap when you sell it to them?”, Lloyd calmly answers: “no”.

There’s something slightly hypocritical in that response isn’t there?

And whilst one maverick firm can break the oath of morality to do what’s right, then all others have to follow to compete is the usual mantra.

A moral compass, an ethical view and a religious purpose in banking – or, just being a good citizen – surely has to merit a bank doing what’s right for the customer.

Until some banks and bankers get that through their thick skulls and cultures, nothing has changed.

 

 

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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4 comments

  1. Interesting and well written post Chris. I agree with your conclusions. The problem doesn’t seem to be new either. Plato records Socrates discussing morality as superior to self interest with Thrasymachus in ‘Republic’.
    Socrates excellent reasoning illuminates how moral and ethical behaviour are not only desirable in themselves but are actually functionally superior. That is to say ethical and moral behaviours produce better businesses which are both socially beneficial and more sustainable in their profitability.
    I do hope those folks in the banking community, who you have rightly highlighted, get the opportunity to create a real and lasting change in culture though I think government and regulation have an appropriate part to play as well.
    Mike Parker

  2. Chris
    As a Christian myself, I found your article very thought provoking. The question of whether it is religion or culture is a fascinating one. One could argue that the Ten Commandments were counter cultural in their original setting, but I would see them as religion. Religion and secularism are both cultures at one level in that they are a way of thinking. My deepest concerns is the present day assumption that religion is “wrong” and secularism is “right”. Philosophically that position is untenable.
    Interestingly thetre is one area of China at the moment where the success of the local econommy is put down to the fact that most of the business peope are Christians. There is an atmosphere of trust and honesty in the business environment which allows transactions to be done securely and in the knowledge that no-one will be cheated

  3. A number of suppliers to the banking industry have trusts through which they channel a % of profits to good causes. Here’s one, I am sure there are lots more: http://www.eacg.co.uk/eacg-foundation/

  4. Simply put, the protesters are participants in the market place of ideas engaged in the never-ending debate over the recognition of social costs of private commerce. Business men are loathe to recognize social costs, just as we are loathe to pay for our share of social goods. With the subprime crisis the social costs have become unacceptably high. Only the select few can be happy with privatized profits coupled with socialized losses.

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