How finance can salvage its reputation
FINANCIAL institutions almost never win the PR wars. When banks lose money, politicians and the media are angry. When they make money, politicians and the media are equally angry. The only time this golden rule breaks down is at the height of a bubble, when everybody – even the industry’s fiercest critics – gets drunk on cheap credit and convinces themselves that we have just entered a new era of limitless, effortless prosperity. If you don’t believe me, just wait and see the reaction as the major British banks report their earnings this week.
Bankers often tell me there is not much they can do to help change the general hatred of their industry. I disagree. Sure, there is no avoiding the fact that the world of finance as a whole made terrible mistakes and that many players have been bailed out. That is a disgrace; private firms should never have to go begging for taxpayers’ money. I have no pity for those directly responsible for that catastrophe; but that doesn’t mean every firm or individual should be tarred with the same brush (and as I have repeatedly argued, those most responsible for inflating the bubble were actually the central bankers who dished out trillions in cheap credit to the private financial system).
So here is my plan to boost the industry’s standing. First, humility: banks that are making billions should make it clear that their results are not only due to their superior intelligence (reduced competition is handy too). Second, contrition: all banks made mistakes, should apologise for them and make it clear that they have changed. Third, a commitment to long-term value creation with a better remuneration structure and a self-imposed ban on rewards for failure at all levels. Fourth, openness: banks should launch a campaign to teach the public how they work, for example explaining how derivatives work. Fifth, the industry should emphasise how much it contributes in terms of jobs, tax paid and especially how pension funds and ordinary shareholders stand to gain from profitable, chastened, sensibly managed institutions.
Sixth, Fitch, a rating agency, expects the eventual cost of the banking bail-out to drop from an initial expenditure of £145bn to £40bn. This remains appalling but at roughly five years’ worth of banks’ corporation tax is a more palatable figure that the idiotic £1.2 trillion forecast by the IMF. Lloyds and RBS should point out that as the government eventually sells-off stakes at a much higher than expected price, the total bill to the taxpayer will be much lower than feared.
Last but not least: when the public thinks of financial institutions, they mean the big brands they are used to – high street banks and big insurers. If the top 20 consumer financial services brands improved their reputation, the whole industry would gain immensely – accountants, investment banks and hedge funds alike. The banks and insurers should make a massive effort to improve their service; introduce easier insurance contracts; open bank branches from 7-7 and at the weekend rather than just 9-5; make phone operators more responsive, polite and competent; do away with the fiction of free banking and introduce explicit fees instead of arbitrary penalties; and in general stop treating customers like idiots. Chucking £200m at a campaign for financial literacy would also help.
Finance is essential for our prosperity – but the industry needs to pull its socks up.
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