Banks, bad attitudes and bad behaviour

Last week Hector Sants, the outgoing chief executive of the FSA, lambasted banks for their alleged dysfunctional corporate governance.

Given that this is now nearly five years since we had a global banking crisis and following recession, some may say this is a bit late. But it is better late than never.

As has been discussed over and over again, as Mr Sants rightly pointed out, the pre-crisis regulatory framework for the banks was inadequate, for all the well-rehearsed reasons, including poor liquidity and capital requirements.

That aside, the traditional business model was rather poor: borrowing short and lending long was a disaster waiting to happen.

Most of these have been resolved or in the process of being sorted, through Basel II and Basel III, reforms to Libor and the undeclared introduction of stricter lending criteria in order to rebuild capital reserves.

All this was accompanied by a shift from a light-touch regulatory framework to a more rules-based one – be afraid, be very afraid.

Mr Sants has also recognised a point that we have been making in Financial Adviser for a number of years: corporates are inanimate organisations, they do not make rules or speak to customers, no matter what the legal definition says; they are an aggregation of their employees, junior and senior, and reflect their attitudes and behaviour.

It is not company A or company B that is often behaving badly, but the executives and senior managers who, often for pecuniary gain, treat customers as if they are donors to managers’ own piggy banks, otherwise are totally useless. That is why they often turn a blind eye to their charges’ disrespect for customers.

During the boom times people ignored a lot of such rudeness, tolerated bad service and often turned a blind eye to overcharging since money was cheap.

But in times of austerity they take a closer look at their household finances, they cut back on unnecessary spending, and question dubious charges.

This aside, the real problem with the retail banks, as far as the general public is concerned, is the arrogant way in which they continued to act as if it was business as usual. In the main, the same people who were in control at the time of the crisis remain in the wheel-house as if the ship had not run to ground.

It was as if the captain of the Costa Concordia was demanding to remain in control even after the vessel had grounded and lives had been lost.

It says a lot that what has dominated public conversation about banks for the past five years has not been the crisis, but the remuneration packages of the senior executives and the boardrooms and the quality of service – or lack thereof – delivered to the public.