The Market Magazine

The Banks: A Small Matter of Trust

Why have the banks lost our trust - and how can they regain it?

It's the bankers wot dunnit, right? It was them wot got us into this mess. If it wasn't for the bankers, we wouldn't be facing £83b cuts in public services over the course of this parliament - right?

Well, right and wrong. Since 1997 the country has accrued a public sector net debt (PSND) of £950b, of which - for now at least - only £110b has a direct lineage to the bank bailouts. Yet in the absence of anything more tangible (poor creditors in Florida?) it is the banks that get it in the neck from the rest of us.

And why not? Few of us feel comfortable with the excesses of City culture. We accept it as the necessary face of capitalism and avert our eyes. It remains largely out of view - which is why it tends to be the likes of estate agents and lawyers who top polls of the most hated professionals. These are people we come into regular contact with who have a reputation for dishonesty or at the very least over-zealous salesmanship - followed closely (gulp) by journalists.

Yet in the light of recent events the pendulum of opprobrium has swung back towards the City and looks like lingering in a gravity-defying act. We have saved their livelihoods, if not their souls, so how are they repaying us? Carrying on as normal, that's how. How could they, we say? Where is their contrition, their manners, their how-can-I-ever-repay-you-ness? Why haven't they flung themselves before us and wept tears of sorrow until dawn?

A number of individuals have apologised, including Governor of the Bank of England Mervyn King who, speaking at last month's TUC Conference, expressed his anger at bankers' bonuses and admitted that the Bank of England, along with the financial sector and other policy makers had "let it slip". Yet the fact that the city doesn't have a figurehead who can apolgise for all of them is indicative of the problem. Who is ‘managing' them? Even the Catholic Church, when responding to worldwide claims of sexual abuse, had God's representative on earth to speak up. The city doesn't have anyone.

Even without a group-apology there is still the chance to show remorse. In our daily lives, when we have erred, we can repent by behaving better, dispensing a gift or being generous with our time. This is the currency of forgiveness. The banks have such a language: it's called lending.

But they haven't been lending. The High Street banks have not been passing on full base rate cuts to household borrowers. Instead they have effectively been sitting on taxpayer's money while it earns interest at the Bank of England. Mortgage lending fell to a 10-year low of £11.4b in August, with the banks forced to fend off accusations that they were obstructing first-time buyers and suffocating the housing market. Business loans are harder to secure than ever, with new businesses being rejected out of hand within minutes of their application. Mervyn King referred to the banking industry's "heartbreaking" failure to lend to SMEs. Only this month during the Conservative Party Conference, David Cameron tried to rouse the banks. "Tax payers bailed you out," he said. "It is now time to return the favour by lending to Britain's small businesses." Yet they remain overcautious.

Then of course there are the bonuses: swollen, inappropriate, ongoing. This year's pot is expected to reach £7b, a small dip on last year but still eye-poppingly boisterous for those of us on the sidelines counting the cost of the cuts. As a comparison, bonuses reached only £3b in 2002. Even Royal Bank of Scotland Chairman, Sir Philip Hampton, has said his bank is paying, "a lot of people who aren't worth it." That's RBS, one of the banks bailed out by the government.

At the bottom of this complex financial mess lies the perception, rightly or wrongly, that the bankers do not care. They don't get rich by caring too much or by being empathetic, we presume. They don't appear to be sorry because they don't think they have done anything wrong, we presume. Worst of all, in our eyes they cannot seem to grasp the fact that they owe us everything, while we stand to lose. Even Marcus Agius, chairman of Barclays, believes the banks are being seen as "scapegoats". At least he has the good sense to recognise the mood of public anger.

"There are still many people who are convinced that bankers just don't get it," he said recently. "Difficult though it may be, we must prostrate ourselves in the face of public sentiment and continue to do so until there is genuine belief that we regret what has happened and the part we played in it."

There are a few vital signs that the City is ready to confront itself. A high-level summit was assembled this month to discuss its "values and trust", and fix the banks' public image. "I believe that unless bankers demonstrate sensitivity and exercise restraint, trust will not be restored," said FSA chief executive Hector Sants, who described bonuses as the "lightning rod" of the public's lack of trust in bankers. There are even early indications that a group of British banks is working towards the development of fund devoted to small business lending.

Most financiers believe that regulation rather than self-imposed restraint is the only way to solve the banks problems of excess. Even if that's true, the culture within financial organisations still needs to change. "Culture controls the way you behave when no one is looking," says Agius. Even devious old capitalism only works well when people behave within the bounds of what is acceptable.

Whatever changes are decided upon they will need to be implemented soon. Last year the Office for National Statistics announced that RBS and Lloyds should be reclassified to the public sector as a result of the bailout. In due course this will add another £1-1.5 trillion to the PSND, more than doubling our crippling level of debt overnight.

With the minutiae of the cuts now published, pressure will fall afresh on the city to curb its worst excesses. Soon we are to enter a period of austerity the likes of which few of us have experienced. We have to endure this together. If there is an element of society that stands too far apart, affluent, privileged and oblivious, this will only lead to further anger and resentment.

September 2010

© copyright 2008 Saul Wordsworth
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