The Financial Services Club's Blog

Changing a bank's culture needs actions not words

We had a fascinating discussion about how to fix the banks at the Financial Services Club last night (Part Two next week) and the gist of what most panellists came back to, as well as the audience, is that we need to return to basics and get the culture right.

This is not an overnight change, a quick fix or an easy thing, but it is a fundamental.

The values and culture need to focus back upon doing what’s right for the customer and society, being ethical and moral, open and transparent, trusted and secure.

400 years of boom and bust

I just had a quick tour of the British Museum inspired by an article I read in The Telegraph about their exhibition of British bubbles and bankruptcies. 

The exhibition traces back schemes from the 1600s, such as the Darien Disaster, right through the Railway Mania and Overend and Gurney Bank failure of 1866 through to Northern Rock and the credit crisis today.

Here are the key disasters you can check out if you visit the Museum before the end of May.

UK Banking Reform Bill: George Osborne's speech in full

UK Chancellor George Osborne gave a speech yesterday on banking reform in Britain.  Widely quoted extracts from the speech have been posted in today's news headlines but, for those who like to make their own mind up, it's worth reading the whole speech in full.  So, here it is:

Bank trust is at an all time low

I recently hosted a meeting of financial market players to talk about how to rebuild trust in banking. 

It was an interesting evening, with most of the attendees accepting that trust in banks was at an al-time low. 

But how low is an all-time low?

Change management means change management

Walking around Davos, we stumble across a small enclave of bank chiefs sharing breakfast.  In this case, Demon, Blankfine, Jinkens and Gilliver, the CEOs of JPM, GSachs, Barcs and HBSC respectively.

Fifty Shades of Law: America, Banking and World War III

No, it’s not about flagellation and sado-masochism, although the current regulatory regime is not far off that.  It’s also true that the regulatory regime is pretty mind-boggling these days, with fifty shades of interpretation of fifty shades of law.   This was made clear to me in dialogue with a group of European banks involved in the LIBOR fixing program last week. 

We were talking about the likely implications of American regulatory retaliation, and they made it clear to me that the United States is using LIBOR and money laundering as pure extortion from foreign banks to bolster their political coffers.

That sounds a bit extreme, but it made some sense as the conversation developed.

LIBOR - the future

I just updated the LIBOR timeline with what's happening this year when five currencies are discontinued from LIBOR publications.

In case you missed it, here's what's happening.

LIBOR fixing - the timeline

It’s the end of the first week of January and we want to end on an upbeat note.  So what do we get as this morning’s headlines?  A whole heap of dross about LIBOR, a sprinkling of stuff about mis-selling insurances and illegal mortgage foreclosures (read things worth reading every day if you want to keep up with these headlines).

Oh shoot.

That’s not a great way to start the year but then you have to remember that this is nothing to do with 2013 or the future, except in the way in which regulators will want to change the way they regulate the markets.  No, the daily headlines all relate to issues raised before 2010.

The most heinous of these issues that will dog the industry deadlines for most of this year will be LIBOR fixing.

In deep waters

Back to reality and what’s happening in the world today.

I received a bunch of stats and facts from one of my readers last week lookiing at public (governmental) debt across various countries and geographies, and comparing internal debt (money borrowed within country) with external debt (money borrowed from overseas).

Here’s the low-down.

A Banking Union? You must be joking!

For the last decade, I’ve been a fan of the Eurozone.

It’s created a lot of business for many of us.

The Financial Services Action Plan (FSAP), the forty or more Directives, the Single Euro Payments Area (SEPA) and all that stuff has been good for business for consultants, technologists and for some bankers too.

But life is what happens to you whilst you’re busy making other plans, so the bank plan has encountered a rocky course in recent times.

Why is he still SIR James Crosby?

Two journalistic heavyweights - Patrick Hosking in the Times and Financial Services Club friend Ian Fraser - have highlighted a number of questions that the Treasury Select Committee should ask Sir James Crosby, former Chief Executive of HBOS (now Lloyds), today.

Sir James will be appearing in front of the Treasury Select Commitee at 3:30 GMT and the questions are pretty meaty.   Purely because of the evidence against Sir James, it will be interesting to see his response, if these questions are asked.

Here's my summary of the most crucial pieces:

Jesus Christ Superstar, and the Occupy Movement

I recently went to see the latest revival of Andrew Lloyd-Weber’s Jesus Christ, Superstar.  

The new version of the musical toured the UK’s largest Arenas, with an all-star cast and a lengthy TV audition show to select the man to play JC.

Having seen the musical a few times already – we love all things Lloyd-Weber – I expected it to be the same, familiar story, but was surprised to find the show had been updated and changed considerably with Jesus now being an activist in the Occupy Movement sitting outside Saint Paul’s.

The man behind the mask

I’ve gotten into this habit of using the SIBOS closing party to do something a little bit on the edge.  Controversial, but meant to be funny.

Last year I was the world’s hottest banker …

… and this year I was anonymous …

The problem is that I wasn’t.

I was spotted and it didn’t take long before the party police closed in, asked me for my SIBOS id and then asked for the disguise to be removed.

I was surprised but not, as the mask is a bit of a shocker.

A mask hides your identity and turns you into someone else.

Unlike last year, where everyone thought the hottest bank rock star outfit was an amuse bouch, I walked around the Osaka-jo Hall and felt very uncomfortable.

Uncomfortable with the looks I was given by everyone in the room and uncomfortable in the mask.

Most turned their faces away, and I felt relegated to a new underclass, to be ignored and driven out.

A pariah.

The virus Anonymous had entered the room and needed to be driven out.

But I was only wearing a mask.

Just a $5 plastic mask from a joke shop.

Some joke.

It just made me realise how I was lucky to be able to remove the mask and revert to being Chris.

Same t-shirt but no mask, and instant acceptance.

It was an amazing experience, and it brought home to me how the Occupy movements’ bravado should be admired rather than admonished.

Or, as the Bank of England’s Andy Haldane put it:

It is now over a year since the Occupy movement commenced its journey and entered the collective conscience of the public and policymakers.  One year on, what has it achieved?

Some have suggested rather little, that Occupy’s voice has been loud but vague, long on problems, short on solutions.  Others have argued that the fault-lines in the global financial system, which chasmed during the crisis, are essentially unaltered, that reform has failed.

I wish to argue tonight that both are wrong – that Occupy’s voice has been both loud and persuasive and that policymakers have listened and are acting in ways which will close those fault-lines.  In fact, I want to argue that we are in the early stages of a reformation of finance, a reformation which Occupy has helped stir.

[For the full speech click here]

Bear in mind that these guys are now the industry’s regulators ... so stop being upset by a mask and go and talk to the people.

Just as I talked to the people last year about bankers, and they equally ignored my message, this rift of the bankers versus the people is caused more by prejudice than understanding.

Here’s to less prejudice about the colour of your skin, ethnicity, sex, religion ...

... oh yes, and plastic masks.

 

The Future of Hacktivism: the Collective Party

During the week, I’ve been discussing various aspects of risk and riot in the system, from the potential for an uprising to how anonymous works.

One of the key areas to consider is also where all this goes in the future.

That’s what I thought would be good to talk about today.

I should be clear that the focal point here being where anonymous and occupy go in the future, rather than how the cyberwars play out.  That’s something I’ll come back to tomorrow as it’s worth a chat about Stuxnet and the potential for corporate cyberwars.

But circling back to wikileaks, anonymous and the power of one, we are seeing an emergence of a new form of crowdsourced activism.

The uprising

I spent some time contemplating history last week, and realised just how many times we have been through moments like this.

The Civil War in Britain; the storming of the Bastille in France; the Russian Revolution; the themes of many German philosophers during the 1800s, such as Karl Marx and Friedrich Nietzsche; and more.

Throughout history there have been many moments where the mass poor attack the elite rich to rob them of their wealth.

‘Let them eat cake’, is a fine response, until the them concerned decide to spit the cake back.

What is the alternative to LIBOR?

After the LIBOR debacle and the money laundering affairs of Standard Chartered and HSBC, the UK’s banks reputation are in the toilet.

Now we have to rebuild, and this is where it gets interesting and challenging.

Quantitatively Ease the People!

Anatole Kaletsky, the well-known journalist with the Economist and Financial Times, is advocating  Quantitative Easing for the People (QEP) over in his Reuters blog today.

The idea is to give every household $6,000 or £6,500 per person to increase consumption and spending. 

Lloyds' Olympian Challenge

It’s Friday, it’s summertime and it’s the day the London 2012 Olympics begin.

Fantastic.

Tonight’s opening ceremony should be amazing and so, rather than talking about banking today, I thought I would talk about banking Olympians.

Lloyds Bank were one of the first to sponsor the London Olympics.

They have an official bank sponsor website ...

... and spent £80 million to secure their Olympian status.

This was back in 2007 of course, before the financial crisis.

Since then, there’s been a long and winding road to get from a secure, boring old retail bank to being one of the UK’s leading fruitcake banks.

This was of course prompted or caused by Gordon Brown and Alastair Darling forcing the hand of Eric Daniels and Viktor Blank, the then CEO and Chairman of Lloyds TSB, to takeover HBOS.

Since then, the bank has tumbled into an abyss of issues which led to the government taking an initial 43% stake in the bank, lowered to 39% today.

The bank found itself in a quagmire of a mess, particularly with the commercial lending portfolio of HBOS, leading to consistent losses for the past few years.

The worst of these was in 2008-2009, when the bank wrote off £24 billion in debt, although the year-on-year results are not particularly impressive.

The bank posted an operating loss of:

• £6.7 billion in 2008;
• £6.3 billion in 2009;
• £281 million profit in 2010; and
• £3.5 billion loss in 2011.

The 2008 – 2009 losses are attributable to the mistake of taking over HBOS, which cost the bank around £42 billion in costs, compared to the mere £8 billion acquisition price.

But more worryingly they have other challenges today as the leading UK bank embroiled in the PPI scandal.

This is the insurance that was sold without customers being aware they were buying it, and Lloyds originally estimated the cost would be about £3.2 billion in claims.

They’ve now upped that to £4.3 billion so far, with £1 billion of this just the cost of processing the claims, half of which are fictional.

Then they’ve got burnt by the European Competition Commission forcing the sale of 632 branches in Project Verde.

This decision was forced upon the bank as they gained over thirty percent market share of UK current accounts when they acquired HBOS.

Trouble is that selling branches today is not easy, as there aren’t many buyers.

In the end, they sold the package to the Co-operative Bank in a deal that was daylight robbery.

Just look at the numbers:

Lloyds deal with the Co-operative  

Price paid: £350 million + £400 million promised      

Number of branches: 632

Virgin deal with Northern Rock

Price paid: £747 million + £538 million

Number of branches:  75

And some people thought the Northern Rock sale was a bad deal.

Lloyds was a real humdinger. 

For example, they got way less than their original £2 billion estimate for the branch deal value and it cost them £1.8 billion to get rid of the branches.  This was admitted yesterday when the bank stated that it had cost them around £1 billion to organise the branch sale and they had lost £800 million on the deal value.

Hmmm … doesn’t sound like good business logic to me.

Finally, there’s another small matter of LIBOR. 

The bank also stated yesterday that they were involved in the scandal as defendants in several law suits that analysts estimate will cost them at least £1.5 billion or more.

All in all, between Verde, LIBOR and PPI, the bank still has a long road to run before they get out of the woods.

An Olympic marathon, you might say.

For those interested, here’s a summary of yesterday’s news stories about Lloyds:

Lloyds Banking Group has posted a half-year loss and has increased provision for payment protection insurance (PPI) claims by £700m.

It is the second time this year Lloyds, which is 39% taxpayer-owned, increased the provision for PPI claims taking the total cost to £4.3bn in 18 months from an original £3.2bn.  The new provision drove the bank to a half-year loss of £439m, down from a loss of £3.3bn in the first half of last year when PPI also drove the bank into the red.

A regular critic of the claims management companies that put in claims for PPI mis-selling on behalf of customers the bank’s CEO, Antonio Horta-Osório, revealed that the bank had deployed 1,000 staff to tackle erroneous claims. He said 50% of claims put in by these firms are false, double the level three months ago. Redress payments made and expenses incurred for PPI by the end of June 2012 had reached £3bn.

Lloyds is shrinking.

Non-core assets declined from £140.7 billion at year-end to £117.5 billion and it expects to reduce non-core assets to £90bn by the end of next year, a year ahead of its target, and a negligible £70 billion by the end of 2014.

Lloyds is a defendant in several Libor-related lawsuits. Research from Liberum Capital has suggested it could have to pay out up to 1.5 billion pounds ($2.3 billion).

On a conference call with reporters, Finance Director George Culmer said there was no need for the bank to set aside funds for potential litigation arising from the Libor affair.

"We are still part of an ongoing investigation and until the regulator is satisfied that that investigation is complete there is no point at this stage in thinking about or putting down a number," Culmer said.

Horta-Osório admitted that the bank could lose up to £800m from the sale of 632 branches to the Co-op but that this would be negated by a reduction in capital needed. But creating the branch network, required by the EU as a result of the £20bn of taxpayer money used to prop up the bank during the banking crisis, had cost £1bn.

The impairment charge of £3.1bn for customers missing loan repayments was down 42%.

Some 45,000 jobs are expected to be lost as a result of the rescue takeover of HBOS in 2008 and a new cost-reduction programme implemented by Horta-Osório when he arrived. Some 4,555 full-time equivalent role reductions were announced in the first half of 2012 taking the total to 6,653 since the start of the new cost reduction programme.

If we look at the core operations of the bank, income is falling by 11% while costs only improved by 4%. Even the near-halving of the impairment charges couldn't help, as management profit slipped 5% from the first half of last year.  Overall, the underlying revenue of the bank fell 17 per cent to £9.25bn, as the bank suffered subdued demand for new lending and shrunk its non-core asset pool.

The shares were flat at 29.3p yesterday, down from £5.70 before the crisis hit and under half the 63 pence the government paid, representing a paper loss of around £11bn on the taxpayer's stake in the bank.

 

Transparency is like forcing everyone to fly naked

We had a great meeting at the Financial Services Club Clearing & Settlement Working Group (CAS-WG) plenary this month.

The CAS-WG is rocking and rolling forward, with four subject groups meeting regularly between the plenary meetings.

The four subject groups focus upon the challenges of clearing and settlement to deal with risk, regulations, standards and market infrastructure operations.  Each group has nominated chairpersons:

• Risk Subject Group Chair: Paul Young, Associate Director for Business Risk Services, Grant Thornton
• Regulations Subject Group Chair: Rory Webster, Director with CapitalTrack Ltd
• Standards Subject Group Chair: Virginie O’Shea, Lead Analyst with Aite Group
• Market Infrastructure Subject Group Chair: Kathleen Tyson-Quah of Granularity Ltd

and are moving forward with focus.

At the July plenary each Chair gave an update of their group’s progress, along with two panel discussions in between.

The first panel discussion debated the merits of the European Market Infrastructure Regulation (EMIR) which is now in consultation with the European Securities and Markets Authority (ESMA) through 5^th August, before ratification by the European Parliament at the end of September for implementation in 2013.

The second panel picked up on the ISO17442 standards for Legal Entity Identifiers (LEI).  These are agreed for rollout from March 2013, and should make it far easier to track and monitor OTC Derivatives and other financial instruments as they move between different clearing systems.

This area was discussed in depth by:

• Graeme Austin, CEO of ISITC Europe
• James Whittle, convenor of ISO/TC 68 working group WG 6 responsible for the LEI standard (amongst many activities),
• Richard Young, Head of Regulatory Affairs for Securities Markets at SWIFT
• Virginie O’Shea, Analyst with the AITE Group and Chair of the CAS-WG Standards Subject Group

So I’ll start by writing up a little bit on this debate.

By way of background, Legal Entity Identification (LEI) is a new ISO standard (ISO17442) which will apply to all Financial Contracts from 2013, according to an agreement made by the G20 earlier this year.

This means there will be a single, universal standard for identifying all parties involved in a financial contract, and will make it far easier therefore to see counterparty positions should another crisis occur such as the Lehman’s crash.

The standard has been established by the U.S. Treasury's Office of Financial Research following proposals by the Depository Trust & Clearing Corporation (DTCC) and SWIFT.

SWIFT will act as the registration authority, acting on behalf of the International Organisation for Standardisation (ISO) to assign the ISO 17442 LEI standard.  The DTCC will act as the facilities manager which will receive, review and publish entity information.

The development of a single global standard for LEIs is a key element in the broader effort to understand and monitor systemic risk across banks and capital markets.

Furthermore, LEIs will allow Trade Repositories to keep a single record of a financial instrument, which will make it far easier to sort out a liquidity or counterparty collapse.

For a comprehensive background of the development of this standard, you can checkout this document: download LEI timeline of events.

Interestingly, in Virginie’s update on standards, she had picked up this chart from the Financial Stability Board’s list of recognised and approved trade repositories:

It shows the DTCC’s strength, which some are calling a monopoly, and a lot of discussion took place about concentration risk when so much dependency is placed upon one CCP.

On the other hand, some argued that concentration of monitoring is a good thing, as the more centralised a single record of risk, the easier it is to manage.

The general discussion however was the feasibility of implementing a single global standard for LEI’s.

James was adamant that this has been agreed and is being rolled out, no matter what other standards are mooted.

In the earlier panel:

• Robin Poynder, Head of Regulation, Marketplaces, Thomson Reuters
• Peter Randall, CEO, Equiduct
• Kathleen Tyson-Quah, CEO, Granularity Ltd

discussed EMIR, the European Market Infrastructure Regulation.

EMIR has three objectives.

First, to reduce counterparty risks by:

• defining the framework for the application of the clearing obligation;
• specifying the risk mitigation techniques for OTC derivatives not centrally cleared; and
• laying down the requirements for the application of exemptions to non-financial counterparties and intragroup transactions

Second, to create safe and resilient central counterparty systems (CCPs) by developing a comprehensive set of organisational, conduct of business and prudential requirements for CCPs.

Third, to increase transparency by:

• specifying the details of derivatives transactions that need to be reported to trade repositories;
• defining the trade repositories’ data to be made available to relevant authorities; and
• setting the information to be provided to ESMA for the authorisation and supervision of trade repositories.

The text of EMIR was issued on 25th June 2012 for consultation, and the consultation will close on 5th August.  At this point it moves into Parliamentary submission for full EU endorsement on 30th September 2012.

That’s a rapid cycle regulation and led to a lengthy dialogue around the effectiveness of the rapid cycle consultation process taking process around EMIR, and whether with Basel III, Dodd-Frank, the LIBOR crisis and other issues, the regulatory framework was being too rushed and fragmented or whether it could actually work.

In particularly the whole notion of transparency was questioned as to whether it was a good or bad thing.  Peter Randall was particularly dismissive, describing it as being like an airline security system.  The idea of a secure airline is one where all passengers fly naked.  You know you’re safe as everyone can see what everyone else is carrying with full transparency.  However, there wouldn’t be many passengers.

That is the fear for the impact of EMIR: that it creates transparency but all trading and liquidity disappears.

Robin Poynder made the position clear when he said that you may not like the regulatory framework, but the regulators are pushing through their changes whether the markets like them or not, and are even willing to see markets collapse if that’s what it takes to make them effective.

In other words, whether liquidity is there or not after the regulatory process, they really don’t care as long as the markets are safe.

Kathleen responded by saying that this is more likely to result in a flight from the markets, where these regulations force full transparency and movements to other geographies.  What that means in reality is that you see liquidity disappear in the markets where they are needed – Europe and America – leaving only higher risks for the pension funds and corporates trying to manage their collateral.

From the Subject Group updates, the main highlights were their progress in creating future agendas.

The Risk Subject Group was discussed by Shaun Cooke, and has four focus areas:

• Enterprise Risk Management (ERM);
• The calculation of complexity and the increasing reliance on quantitative analysis to manage risk;
• A “liquidity famine” as banks and many of their clients are being forced to reserve increased levels of capital which could lead to an asset scarcity; and
• Issues around the holding of deposit insurances and collateral, as this could lead to increasing moral hazards.

The aim is to develop these areas into working papers and recommended best practices to share across the Subject Groups and other interested parties.

The Regulations Subject Group update came from nominated Chair Rory Webster, a Director with trade repository CapitalTrack Ltd.

The Subject Group is working in two key areas today:

1. to inform and educate the marketplace and all institutions affected by EMIR on what it means and how it might impact their businesses; and
2. lobbying the regulatory authorities to ensure EMIR is not a single conversation from the regulators but one that is two-way with all parties impacted included in the dialogue.

In particular, the group has initially focused upon EMIR and how it affects non-financial counterparties: will they be caught up or caught out by the regulation? 

Bearing in mind the short-term focus for input to the consultation process by 5th August, the Subject Group asked for all input to be sent to the CAS-WG Chair by 2nd August 2012 to ensure our views are represented effectively to ESMA.

The group has also drawn up a matrix of regulations and how they impact different market functions, which is available from group co-chair Greg Caldwell of aSource Global Ltd if required.

The Standards Subject Group has focused upon trade repositories and the DTCC, and their slides – compiled by Standards Subject Group Chair Virginie O’Shea, Lead Analyst with Aite Group – can be seen below (from Slide 15):

FSClub CAS-WG Plenary, July 2012 from Chris Skinner

The main activities of this group are to:

• highlight work that is currently on-going within the industry around data standards and market practices in the post-trade space
• identify the common points of interest/pain within these groups and facilitate communication across groups (buy-side/sell-side etc) – reduce duplicative work
• examine how all of this work will impact the clearing and settlement lifecycle as a whole – are we pushing risk further down the process?

With the aim to:

• track industry standards and market practices progress as a “living document”
• identify areas of common interest
• map to clearing and settlement lifecycle – where are groups missing a trick?
• discover which data standards are currently being used by the incumbent market infrastructures

The focus areas of the group include:

• new data standards – LEI, UPI, USI, UTI etc
• messaging standards – FIX, ISO, FpML etc
• market practices for C&S process- allocation, confirmation, affirmation, settlement , low tech clients, reconciliation
• regulatory influence – which pieces of regulation can we have a material impact upon?
• points of interaction between clients and firms – how do we change downstream issues? Can standardise internally but point of entry remains a problem
• cultural issues internally – raising the profile of these standards issues for C-level
• global dynamics – are we on the same page?

And the Group will identify:

• which pieces of regulation can be influenced?
• where are market practices lacking? Review common areas of focus across working groups
• what can be learned from other markets?
• how do we make post-trade teams’ lives easier?

In their on-going meetings.

Last, but not least, the Market Infrastructure Subject Group chaired by Kathleen Tyson-Quah of Granularity Ltd, are looking at the models for market complexity and are creating their own map of these structures to avoid any surprises.

The model the Group has developed will track the harmonisation of regulations and standard, and identify any overlaps or conflicts these create in the market infrastructures.

This is something I have advocated for a while now: we need a clear map of how the changes to system, structures, standards and regulations relate to each other. 

Price formation is also on the group’s agenda, as the current LIBOR crisis will expand how pricing is set.  Historically, prices have been set using mark-to-market reference rates, but self-certifying reference rates for derivatives pricing will now be called into question and change demanded.  What will this mean for markets?

The group also recognises that there are 20 new CCPs being built today, with six in London alone.  Does this mean too much concentration risk?  It certainly means that there are changes to the way CCPs are capitalised.

Finally, the group is reviewing the impact of the new rules for clearing and settlement announced in April, when CPSS-IOSCO released three reports:

• a report entitled Principles for financial market infrastructures; 
• a consultation paper on an assessment methodology for these new standards; and 
• a consultation paper on a disclosure framework for the standards.

The new principles are designed to ensure that the infrastructure supporting global financial markets is robust and well placed to withstand financial shocks, with the new rules applicable to all systemically important payment systems, central securities depositories, securities settlement systems, central counterparties and trade repositories (collectively “financial market infrastructures” or FMIs).

These FMIs collectively clear, settle and record transactions in financial markets. 

As mentioned, the Group’s deliverable will be a model that maps out all such changes, and makes clear the implications.

So there you have it.

Four Subject Groups and two Plenary Panels.

The Subject Groups will continue to meet through the summer and the next plenary meeting will be in September.

If you’re interested in joining in, just let me know.

 

 

 

Forget about rebuilding trust ... it won't wash

Rebuilding trust.

A phrase that is used regularly throughout the banking industry since the crisis began.  I particularly remember it being used as a theme at SIBOS two years ago; it was a theme that ran through Bob Diamond’s Today Lecture in 2011; and it is a theme that is running throughout the City still, with Adair Turner’s speech yesterday focusing upon rebuilding trust.

Great.

However, as my blog pointed out yesterday, trust is trashed and I honestly do not think we can rebuild it.

So stop talking about rebuilding trust as though that’s an easy thing to do, and start talking about being honest.

The focus is completely different.

Rebuilding trust is all about an external focus upon the fact you are losing business with the person you want to connect with: the customer.

As a result, it’s all focused upon how to rebuild the belief the customer has in you, rather than to change you.

‘Rebuilding trust’ as a phrase, for me, just rings of creating this new veneer to try to get the customer to believe in you again.

Like some rampant gigolo having intimacy with anyone, trust in a partnership is hard to rebuild when the partner knows they can no longer trust you.

It has to be earned.

It can only be earned by showing that you can be trusted.

You have to demonstrate you have changed, not just talk about it.

And every time the banking sector slaps the governments, corporations and consumers around the head with a new scandal, that trust is broken further.

So, is it irreparable?

No.

But it cannot be rebuilt.

It has to be earned.

We should talk about earning trust, not rebuilding it.

And how do you earn trust?

By being honest.

Being honest should be the mantra, not rebuilding trust.

Being honest as the focal point starts to point to behaviours that show you can be trusted.

As I mentioned yesterday, it’s about what you do when no-one else is in the room.

It’s about the things that National Australia Bank is celebrating in their latest ad campaign.

It’s about being transparent, open and clear.

It’s about avoiding secrets, avoiding lies, avoiding dishonest practices.

It’s about paying your taxes, doing what’s right for the customer, putting the needs of those you serve above your own.

These are all things that the City, and the banking sector as a whole, has trashed although it’s not the whole banking sector, but the part of the industry wrapped up in sleazy practices.

Rate rigging, bonus grabbing, insider dealing, corrupted bankers.

These are the small few who have rotted the barrel for the many. 

The majority of those involved in banking are honest brokers.

It’s the dishonest few who have trashed the reputation of the honest many.

So when we talk about a return to boring old banking – something that is unrealistic but nice to imagine – the real point should be a return to honest banking.

Get rid of the dishonest few and keep the honest many.

What does that mean?

Take Vickers to Volcker and turf the whole darned speculative group of casino capitalists who think of their clients as muppets out into the hedge fund fringe.

Sure, there’s more to it than that simple action, but at least it would be a good start.

 

Postscript: to be clear, I am saying that the Volcker Rule will go global.  The Volcker Rule states that investment banks can no longer be involved in proprietary trading, where they are speculatively investing their own money in trades that sometimes are at opposites with their client's needs.  In addition, brokers should return to being private partnerships where the partners have to invest their own capital to trade, rather than just running a book of business with massive risks and rewards, but zero accountability.