A Risky Business

September 16 2018

According to this survey (taken this August), only 3% of people had a very positive view of financial services, with 57% having a very or somewhat negative view.  And all this 11 years after the run on Northern Rock and a decade after the Lehman’s bankruptcy, the bailout of RBS, the Lloyds takeover of HBoS and the disappearance of venerable institutions redolent of Britain’s sober manufacturing past, such as the Bradford & Bingley Building Society.  One might have thought that a decade would have been enough for people to forget what happened.  But like an itch that continues to be scratched, banks have, right up to the present day, provided many more examples justifying customers’ perennial exasperation with financial services providers: closure of branches, endless IT problems, the continuing PPI mis-selling saga, interest rates for savers still at rock bottom, mis-selling and mis-advice over pensions.  Even the much vaunted culture change programmes embarked on by many banks don’t seem to have changed perceptions, possibly because some of the sector’s leaders have not fully appreciated that this applies to them too.

The 10-year anniversary has brought out two figures from the past to give their take on where we are now and, in so doing, they managed to compliment themselves (without seeming to, unless that was the point of the exercise) on their past successes.  The first was Gordon Brown, the Prime Minister in charge when the crisis struck and famous for having claimed in Parliament that his efforts “saved the world” or its banks, anyway.  Certainly, the efforts of his government in autumn 2008 prevented the failure of the entire British banking system.  Would it be uncharitable to consider what responsibility his government (and the previous government in which he served as Chancellor) had for the state in which banks found themselves that autumn?  Had earlier warning signals perhaps been ignored by regulators?  Still, his claim that a more fractured system of political governance might make it harder for governments to co-operate should another financial meltdown occur is well made.  It is not just within financial institutions that silos can prevent those at the top seeing the full picture; the same can happen at governmental and regulatory levels too.

And so to Bob Diamond, never shy about arguing the case for aggressive investment banks and the need to take risk, who popped up on the radio last week to tell us that we should view Barclays (which did not get government funding) very differently to RBS, which did.  Possibly a touch premature, given that the SFO trial of senior Barclays executives in relation to Barclays’ capital raising that autumn is not due to start until January 2019.  (Even Diamond’s previous arch-critic, Lord Mandelson, after his change of heart, has weighed in echoing his criticism.)  Far from being concerned about a breakdown of trust between governments (Brown’s concern) or, indeed, trust in banking, let alone the culture at Barclays or other banks in the period leading up to the crash, Diamond thinks that the changes made in the last decade have made banks “too risk averse”, that without risk, banks won’t lend, the economy won’t grow.

Both men have a point.  But they miss something which has not been much canvassed in the reams of commentary devoted to what happened a decade ago.  Regardless of how well risks are understood, regardless of how co-operative governments and regulators are, regardless of how good the rules are, regardless of how many wonderful AI developed risk management systems are used, there will never be a perfect financial system.  Or a perfect regulatory system.  Problems will always arise.  And there will be warning signs – about people, about institutions, about certain types of business.  They may not be obvious or easy to read.  As the haystack gets bigger, trying to find the needle in it becomes ever harder.  Identifying what needs to be followed up and what can be ignored takes skill and experience.  Sensing what might become serious and getting people to act before it does so takes persistence.  No-one wants to be a Cassandra, endlessly forecasting doom. Even fewer want to listen to her.

Being prepared for the next big meltdown is necessary.  But just as much effort – rather more, in fact – needs to be focused on listening to – and acting on – those warning signs, to catching problems (whether mistakes, incompetence or deliberate wrongdoing) early, when they are small, when they can be contained and resolved without too much pain or collateral damage, when they can become learning opportunities for all rather than crises to be managed.  Problems, however small, don’t just need fixing then forgetting.  They also tell you a story – about the institution, about the people in it, about how business is done.  If we are to avoid the inevitable recitation, after every scandal, of the numerous opportunities when the issue might have been identified, acted on and stopped – or mitigated, it is a story which needs to be listened to.

After all, Cassandra turned out to be right.



Photo by Lubo Minar on Unsplash


May 9 2018

According to David Kynaston’s history of the Bank of England (Till Time’s Last Stand), financial crises of one sort or another seem to occur at roughly 10-year intervals and, usually, in the autumn.  Oh dear!  Let’s hope then all the lessons of the last crisis have been properly learnt.  After all, as a famous financial journalist wrote: ““The great wish on the part of the English people as to currency and banking is to be safe.”  Well, quite – and as true now as when it was written – in 1844 by Walter Bagehot.

My take on the last 30 years or so of financial crises and how the sector is responding can be found here in May’s edition of FS Focus.  (My thanks to John Mongelard of the ICAEW and Chris Evans, the editor, and his team.)


The article can also be found here (on page 32).

Photo by rawpixel on Unsplash