FSA highlights decline of trust
Lord Turner says that while banking sector is a vital contributor to the UK economy, competitors abroad draw attention to its failures.
Last month Lord (Adair) Turner, chairman of the FSA, gave a clear and blunt message to the banks in a speech entitled ‘Banking at the Crossroads: Where do we go from here?’
He made significant reference to The Economist front page headline a few weeks ago of ‘banksters’ and said that when such a respected magazine suggests that banking is riddled with malpractice, its “credibility shot”, trust evaporated, we have a major problem.
The major problem identified by Lord Turner was that although the bank community is a vital contributor to the UK economy and it plays a crucial role in a vibrant market economy, its excesses and failures are issues that our competitors abroad are only too happy to draw attention.
Lord Turner identified three key drivers of declining trust in the UK banking system:
* People have come to doubt the economic benefits of financial liberalisation and of much banking activity.
* They doubt banks’ values.
* They doubt whether banks have their best interests at heart.
Lord Turner criticised the assertions made ahead of the banking crisis of the economic benefits that lay ahead for all of us arising from innovative banking activities that ultimately spearheaded the banks’ rationale for justifying huge bonuses. Lord Turner said that the complexity and opaqueness of investment bank innovation contributed to the banking crisis and referred to various published third party quotes revealing “a dealing room culture of cynical greed”.
As to where do we go from here, to rebuild trust in the banking system and rebuild recognition of the vital role which a well-run banking system plays within our economy, Lord Turner suggested five elements of response:
* Better prudential rules and new macro-prudential policy approaches.
* structural changes, following the Vickers Commission.
* Better, more intense and more robust conduct supervision and enforcement.
* Action by bank leaders to improve culture and values.
* Recognition by the regulators, politicians and consumers of the challenges that the banks now face.
Leaders of banks will be heedful of this speech.
Philip Ryley is a partner and head of financial services and markets of Michelmores LLP
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