Fixing Our Banks: Part Two – the Bank View

As mentioned yesterday, I introduced a discussion about Fixing Our Banks this week, alongside a
distinguished panel comprising:

• Charles Middleton, Managing Director of Triodos
  Bank;
• Seamus Gillen, Policy Director with the
  Institute of Chartered Secretaries and Administrators (ICSA);
• Dominic Hook, National Officer for Finance and
  Legal with the Unite union;
• James Daley, Head of Money Content with the
  Which? Consumer’s Association; and
• Andrew Chambers, Professor of Internal Auditing
  at London South Bank University.

It was an interesting dialogue covering bank, shareholder,
employee, customer and auditor’s views of how to fix the banking system.

Charles began with a discussion of many of the issues in the
industry: bonuses, trust, casino capitalism, risk and more.  He talked a little about how the bonus culture
arose, as partners who risked personal capital moved to firms with no risk
involved.

It made me think of Bruce Forsyth’s Brucie
 Bonus - didn’t they do well?

Charles then talked a bit about solutions from living wills
to ring fencing, and it made me think about how banks find great ways around regulations.

This dates back to my favourite quote from Salamon Smith
Barney’s General Counsel who said back in the early 1990s: “my role is find the
chink in the regulator’s armour”.

It still is.

Regulators are always behind the markets, catching up and
trying to plug the holes.  Similar to tax
avoidance schemes, the taxman is always trying to catch the points where leaks
happen; in banking, the issue is that the regulator is always trying to catch
the points where risks happen.

Each time they crackdown, it’s like a balloon.  You squeeze one part of the market and it
bulges somewhere else; similar to the tax issues.

So just as we bring in electrified ring fencing, banks became
artful at trampoline ring jumping.

Just as we introduce Funding for Lending, banks become
clever at Funding the Balance Sheet.

Just as we bring in bonus restrictions, banks will find ways
to create bonus exceptions.

You don’t think so?

As soon as the EU bank bonus restrictions were announced bank
lawyers and human resource departments were looking at ways around it.

There’s a view that salaries will double or treble, and that
‘gifts’ and other corporate donations ot pensions or similar schemes will arise
to get around the restrictions.

Charles concluded that bank trust was at an all-time low,
but that is also not necessarily a good or bad thing, or even the case.

I remember in 1996 chairing a meeting where an Australian
Bank said that trust in their brand was lower than any other brands in Australia,
even cat litter!

Banks have never had a high regard because they hold the
strings of how we live, spend and pay. 
That’s unpopular with everyone from the start.

So will things really change from a banking perspective in
light of the issues raised?

Yes, but with limitations.

Banks will change culture in the near term but, in the long
term, the system will revert to type and continue to find ways to create risk,
avoid rules and ensure that those who need to be paid get paid the most.

Or that’s my view anyways.

Tomorrow, I’ll give you the shareholder's view.

Meantime, as an amusement, you may not realise that the man who stole the banker's bonus is a former IBM employee called Philippe Lamberts, so now you know who to blame!

We have a repeat evening of this debate at the Financial Services Club on 14^th May with:

• Charles Middleton, Managing Director of Triodos Bank;
• Dominic Hook, National Officer for Finance and Legal with the Unite union; and
• James Daley, Head of Money Content with the Which? Consumer’s Association

If you would like to attend, click here.

This was part two in a five part series:

• Fixing Our Banks: Part One
• Fixing Our Banks: Part Two - the Bank View
• Fixing Our Banks: Part Three - the Shareholder's View
• Fixing Our Banks: Part Four - the Employee's View
• Fixing Our Banks: Part Five - the Customer's View