When repeal of Glass-Steagall brought investment and commercial banks together, it would appear from the events over the last decade or so that the investment bank culture came out on top. The prevailing business strategy becoming pursuit of the high returns that could be obtained only through increasing leverage and risk-taking. What has changed: commoditisation of banking relationships 15. As well as bolting together different businesses with different cultures to achieve growth at a much faster pace than would be possible “organically”, banks have over the past few decades expanded from serving more limited numbers of wealthy customers to covering the mass market. Where once the local bank manager might have expected to know a significant number of his customers personally, now customer numbers are so large as to render relationship banking (outside of specialist areas such as private banking) all but impossible. The result? Well a degree of commoditisation, and perhaps inevitably alienation. As a banker cannot possibly engage with the vast majority of his customers, personal bonds are much weaker or indeed no longer created, blocking off another avenue through which relationships built on trust might develop. At the same time, customers have increasingly regarded banking as a transactional relationship and are willing to jump from one bank to another just for the sake of a slight improvement in the interest rate received on deposits. What has changed: short termism of shareholders 16. And if banks’ customers and creditors have changed – what about their shareholders?
I was really encouraged by the implicit acceptance, in putting this on the agenda of a banker’s summit, that it is primarily for the industry to seek to regain the moral and ethical highground it once enjoyed. I wholeheartedly agree. This is not something which can, or should, be regarded as a “policing” or “enforcement” matter for the regulator. Getting caught out, taking the fine as a “cost of doing business” and moving on with making money, is just not acceptable as a sustainable banking business model going forward. I do not subscribe to the view that banks’ primary role is to generate maximum shareholder value, leaving the regulator to worry about the safety of deposits and the interests of the banks’ customers. Now, don’t get me wrong I am not thinking of banks as break-even utility operations but, making a reasonable return should be a result of what banks do – to quote Jack Welch when talking to the FT a few years ago “Shareholder value is a result not a strategy”.1 3. Having a licence or franchise to take deposits, which represent the hard earned savings of millions of people, and use these funds for private gain is a privilege conferred by society on a bank, which merits exemplary professional and ethical behaviour. Moral and ethical highground: trust and respect 4. Returning to the theme of the Summit “regaining the moral and ethical highground” – what do we really mean here? I think, in a word, “trust”. With “trust”, comes “respect”. 5.