Global financial crisis: Don't bet bankers will behave themselves 10 years on

A former regulator reflects on whether the culture of banking has truly reformed since the meltdown a decade ago and says a change in the law is still necessary

Bankers leave Lehman Brothers in Canary Wharf, London, after it went bust (AFP)

Has the culture of banking changed?

Years ago I attended a Banking Standards Conference. Banker behaviour was the issue.

Transforming a culture gone wrong was the challenge. The industry was working on it. A status report was required. So where had we got to?

The verdict then? Progress had been made but there was much more to do. Indeed, it might take up to ten years for banking’s culture to change fully – at least according to Douglas Flint, Chairman of Britain’s largest bank.

The organisers re-ran the event earlier this year.

So what had been achieved in raising banking standards? Once again we heard that: “Progress has been made but there was much more to do.” However, “be assured,” said the bankers, “that we all recognise the need to put our customers first.”

Ross McEwan gave a particularly passionate keynote. The CEO of the Royal Bank of Scotland acknowledged that his institution had become the poster child for much of what had gone wrong in banking.

He then painted a persuasive picture of both the need and intent to put these problems in the past. How? By placing the customer first and foremost in his strategy. Doing so he said, was the key to restoring trust in the industry. It was also good business for the banks.

This new found interest in customers is welcome. Alas, the sceptic will note that “treating customers fairly” [TCF] has been a long standing pillar of the UK’s regulatory regime. Evidently neither the definition of TCF nor its enforcement was up to the task of reigning in banker excess.

Will it be in the future? There is no reason to believe so. Will banker self-discipline rise to the occasion? Perhaps, but that is probably not the way to bet. And do we really need to wait nine more years for the banking culture to adjust to a standard that it admits it lost over ten years ago?

So what’s to be done? May I suggest that Britain introduce into law the principle of fiduciary duty. A fiduciary is a person who holds a legal or ethical relationship of trust with his clients. To ensure that such a position of trust is not abused the fiduciary is obliged to put his client’s interests first.

Placing client interests above and beyond those of the financial executives serving them would reassure the public and help restore that trust in the industry which Ross McEwan covets. It would help the banking establishment retain its new found zeal for client care. And it would strengthen the hand of the well meaning regulator should the banking lobby change its tune or the political winds shift direction.

The time is right. The banks declare that their customers now come first. They acknowledge that this makes good business sense. And many have written a duty of care into their newly revised codes of conducts. Surely they would welcome that the practice to which they are pledged be enshrined into law. Or would they?

Nearly 10 years on from the financial crisis, Britain’s banking leaders are saying all the right things. But will they walk the talk?

Ross McEwan’s address at this year’s Banking Standards Conference was as articulate and rousing as anyone will ever hear. I therefore presume that he will not only welcome this proposal but champion it – that his institution may set a new and better example for all others to follow.

Robert Jenkins is a former member of the Financial Policy Committee of the Bank of England and Chairman elect of the CFA Institute