Banks don't trust themselves

 
Sir Richard Lambert

There is a big question begged by Sir Richard Lambert's recommendations for collective action by the banks to raise their standards of behaviour.

The point is that in coming up with a plan to create a new organisation to spur improved conduct on all banks, Lambert is responding to a request from the chairs of Barclays, HSBC, Lloyds, RBS, Santander, Standard Chartered and Nationwide.

So what is it about banks which means that, unlike supermarkets or pretty much any other industry, the banks don't believe competition provides them with enough of an incentive to behave well.

Is the problem that most of us are still reluctant to take our business elsewhere when our banks let us down - so competition doesn't operate with sufficient intensity?

Is it that so much of what they sell, both to individuals and to institutions, is so complicated and opaque, that most of the time we don't know when we're being ripped off?

Is it that the rewards in their investment banking operations are so enormous, and the pressures from testosterone fuelled managers are so great, that no human investment banker can be confident of permanently resisting the temptation to cut corners and rig markets.

One for all, and all for one

Well, the bleak truth, Lambert would concede, is that it's all that and probably more.

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There is growing political pressure for much more active engagement by regulators”

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In fact, Lambert is so persuaded that banks can't be trusted to rise phoenix-like of their individual volition from the savage bonfire of their finances and ethics that he argues there should be no bankers involved in choosing the board of the new standard setting body and that bankers should be in a minority on that board.

Also, he does not believe the new conduct monitor will succeed unless every bank of any size signs up as a member - and that includes the foreign investment banks operating in the City of London, and the new so-called challenger banks.

His fear is that unless it is one for all and all for one, banks will not force proper behaviour on their respective people, because they will always have the excuse that Mega Bank down the road is still swimming with the sharks and stealing the fastest prey and profit.

Banks' dilemma

And over time Lambert thinks there's a case for every individual banker being able to become a member of this new conduct monitor, and not just the institutions - though he baulks at doing this from day one, because of the organisational challenge of herding tens of thousands of bankers.

So here's the dilemma for the big banks if they follow through on their commitment to broadly do what Lambert proposes.

There is growing political pressure for much more active engagement by regulators in approving all products they sell and in setting prices.

Having conceded via their encouragement of the Lambert plan that the market fails to provide sufficient incentives for them to treat customers fairly and honestly, how do banks resist the argument that the market fails in other more fundamental ways too?

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
    +40

    Comment number 3.

    We set a very bad precedent when we saved the banks (which was necessary) but also saved the bankers (which was not).

    And we set bad precedents every time we fine the business (i.e. the shareholders), instead of the executives, for executive malfeasance.

    Top bankers simply will NOT behave until they - rather than the shareholders - are punished for bad behaviour.

  • rate this
    +22

    Comment number 19.

    An a former banker I can say that as long as you have targets staff will do whatever is necessary to avoid the consequences of not hitting them and managers will turn a blind eye to what is done as long as they look good to their boss. Bankers are paid well enough as it is, they don't need bonuses. Co-operative, positive customer focus management is what is needed , not 'performance management'.

  • rate this
    +17

    Comment number 72.

    You can set up ethics committees, codes of conduct and so on until the cows come home

    The bottom line is banking behaviour wont change until -

    - Employees and directors face the music with personal liability

    - Banks are not bailed out with taxpayers' money

    Just like any other industry e.g. car dealers, house builders, gambling -there will be chancers unless they know the risks are not worth it

  • rate this
    +16

    Comment number 4.

    3. Friendlycard
    JUST NOW

    Agree with that all the way.

    The guilty walk away and leave someone else with the bill for their mess and then again for sorting it out.

    But that seems fine in this country, as long as we can attack someone and make them pay, who cares if they are innocent

  • rate this
    +14

    Comment number 92.

    @90 Removing the ability to trade debt is not over regulation. Its one simple change that will force banks to lend responsibly.

    And if a £multi-billion bank went pop and 300,000 people in the UK had their mortgages cleared overnight, good luck to them. That should be the cost of failure. A cost to the banks.

 

Comments 5 of 243

 

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