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April 30, 2013

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On banks dumping ties to dodgy corrupt practices... (Iang)

It is very clear that the Banks can and will dump dodgy practices if they are perceived to damage their brand. Quoting the Economist:

For sponsors like ING, disassociating the company or a brand from corruption in sport simply makes good business sense, protecting reputation and image from the negative perceptions of consumers. For banks, this matters especially. *Domestic banking is built upon customer trust; how then could such an organisation be associated with a team that was demonstrably untrustworthy?* It is such incongruence that is at the heart of the newly emerging market-driven morality: sponsors do not want to be associated with corruption and hence recoil from it.

http://www.economist.com/blogs/gametheory/2013/04/corruption-sport-0?fsrc=nlw|newe|4-22-2013|5582513|35262316|

Which tells the public that this is not a mystery to the banks, they know how to do this. But without some adverse incentive such as brand damage, it is also clear that Banks will pursue the practices with a vengeance.

This dichotomy of message is now abundantly clear in the public's mind.

Fatally so, I would argue - we are well beyond the tipping point now. Which leads to a problem, how to deal with the ever-growing list of scandals, and a meta-problem, how to deal with the ever-concreting distrust in the public's mind.

The problem here seems to be that in the minds of close stakeholders -- employees, execs, shareholders, regulators -- there isn't a lot of incentive to address either problem. Which therefore leaves the banks heavily exposed to the next systemic shock. Capital games notwithstanding.

Steve

What will be interesting (excuse the punn) is when, in 3, 5, or 7 years form now, a customer sues the bank for NOT providing interest rate protection...

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