Turner outlines elements to restore trust in banking
Rebuilding trust in the British banking industry will be a “huge challenge”, which regulators will have to shoulder equally with the industry, Lord (Adair) Turner has warned.
The chairman of the FSA acknowledged the regulator had made mistakes before the financial crisis, and outlined five elements to help rebuild trust in the industry in his speech, Banking at the Crossroads: Where Do We Go From Here.
Lord Turner accepted that the Libor rate-fixing scandal, bank bonuses and allegations of money laundering had destroyed confidence in the industry, but added that the banking system and the wider financial services industry played a crucial role in the UK’s economy.
But despite calling for a more effective supervisory approach, he refused to comment specifically on whether the authorities could have done more to avoid the low-balling of Libor submissions.
Lord Turner said the collapse in trust was the result of a “story of beneficial economic impact which turned out to be untrue, poor values and malpractice able to operate on an increasing scale, and direct consumer experience of exploitative product sales”.
He added: “The way forward to a more trusted banking system must address each of these problems.”
Lord Turner’s five-point plan to rebuild trust called on better prudential rules and new macro-prudential policy approaches, structural change, better more intense and more robust conduct supervision and enforcement, action by leadership of banks to improve cultures and values, and recognition from regulators, politicians, consumer groups and the general public of the complexity and challenges the banks face.
He said the improvement in prudential rules would be attained by changing the FSA’s prudential supervisory approach, focusing on capital, liquidity and asset quality, adhering to Basel III standards and by the creation of a financial policy committee.
But on supervision, he added: “It cannot possibly prevent all malpractice in advance, without employing a hugely increased army of supervisors and probably not even then. And if we did employ that army, we might well add more cost to the industry than the cost of customer detriment averted.”
Harry Katz, principal of Middlesex-based Norwest Consultants, said: “These people are so used to looking at their own bellybuttons that they cannot see the big picture. You don’t need to be a rocket scientist to know that what we need to do is reverse the Big Bang and separate retail and investment banks.
“Before the Big Bang the bank manager was a respected member of the community who could make his own decisions. The high street bank was simply a utility.”