Thursday, 24 September 2015

This Is Not The Time To Let Bank Management Off The Hook

The CEO of UBS yesterday joined other wolves in sheeps clothing big bank leaders in calling for freedom to make 'honest mistakes' (last year it was the crew at HSBC!). 

This is just a confidence trick. After all, the word "mistake" covers many different types of sin and bank culture doesn't seem to distinguish between honest and dishonest ones, as Andrew Hill of the FT has pointed out. He also cites a memo from JP Morgan's CEO as warning against descending into "a culture of back-stabbing and blame" - but from what I understand that's exactly the culture that already prevails, at least amongst rival managing directors. Emails disclosed in numerous scandals reveal that these are dog-eat-dog environments, full of perverse incentives, where everything from taking the credit for other people's efforts to fiddling records to incurring the odd regulatory fine are just speed bumps along the road to fees, profits and this year's bonus.

Ignorance of exactly what is going on at operational level is another aspect of this confidence trick. Recently, the CEO of government-owned RBS told John Snow of Channel 4 News that he "didn't know" whether there were other major scandals waiting to break. I guess it's a tricky question to answer, but it does highlight the conclusion from the Parliamentary Commission on Banking Standards that these banking groups appear to be beyond management control, enabling those at the top tend to avoid culpability. Remember, too, that many of the recent scandals, like currency market rigging, arose well after the start of the financial crisis. So nothing has really changed since the aptly nick-named 'noughties' (lest we forget Bobby "Dazzler" Diamond's immortal words in 2011!).

And to suggest that regulation might mean big banking groups will tend to take less risk in doing things that customers care about, like lending to small businesses or paying higher returns on savings, is poppycock. They aren't bothering to do this anyway. They just want the freedom to make more money for management, and possibly shareholders. They are simply not customer-led businesses.

For all these reasons, the bank CEOs should continue to be roundly ignored.

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