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Banks must rediscover values for their own survival
The banking sector has managed to put itself in the worst position possible in advance of any further financial crisis. By pushing on with 'business as usual' it has done little to assuage the anger still being expressed by people at its irresponsible behaviour and, now, at news of billions more being paid in bonuses (for performance that depends on the taxpayer backing the system). That means that banks cannot afford to make any further mistakes; the backlash would probably be disproportionate because people will feel that banks just do not 'get it'.
Bank behaviour is perplexing and it certainly seems to be frustrating some ministers in government. Financial Services Secretary Lord Myners gave an interesting speech last week to a City seminar of the Council of Christians and Jews. Noting the need for leadership on values in politics, he argued that 'Just as we need such values leading to action in our politics, we need them in our banks and economic life too. Banks must acknowledge that the values and ethics which drive their businesses are built on the values and ethics of wider society.'
Lord Myners listed examples of what this should mean in practice, including 'challenging...egregious remuneration practices.' Referring to excessive pay he expressed himself '...disappointed at the extent to which we are meeting opposition to change from those who have been rewarded so generously in the past.'
Myners highlighted three principles outlined by the Archbishop of Canterbury to guide thinking in the economic and environmental crises. They were: need for truth and honesty; recognise our stewardship of the earth and our responsibility to future generations; and understand our interconnectedness in that all of us are in these problems together. Myners called on people of faith in the City to 'Let your core values pervade your every action. As faith communities you have so much to offer to the debate.'
We can see that the debate about values in banking is developing. It is not enough to talk about values or urge their adoption. People need to take the lead and demonstrate how such values work out in practice, especially when there is a cost involved. And it is clear we cannot rely on people and institutions to reform themselves. At the least, we need to establish incentives in the financial sector to encourage the virtuous behaviour we seek. Structural reform (eg separating riskier banking from retail banking) is required too. All this is consistent with arguing that when they work properly, banks are a good thing for our economy. That's why we need to save them - even from themselves.
Government can also take a lead. Shareholders should behave responsibly and make their voices heard on executive pay. Taxpayers have large stakes in some banks via the government's shareholdings - those managing such stakes on our behalf must be required to take a lead. If this seems impossible to enforce - well who is apparently exercising unaccountable power in our country? |
Stephen Beer, 29/11/2009 |
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We still wait for a credible conservative economic policy
CBI conference time and the political leaders have been speaking to delegates. David Cameron's economic policy seems to have shifted again. The new emphasis is on growth - that's how the speech has been spun. The talk about cutting public debt is still there, but there is little sign of joined up thinking in the Conservative Party. As the Financial Times Editorial today notes, "rather than economising on their aspirations, the Tories keep finding new ways to spend."
Cameron in his speech suggested that some argue that the public sector deficit doesn't matter and he responds that "If investors see that there is no will at the top of government to get a grip on our public finances, they are going to seriously doubt our country's creditworthiness." Maybe - we actually don't know - but that is why Labour has a commitment to cut the deficit in half, which Gordon Brown emphasised in his speech to the CBI. The Tories do not have a similar commitment (but they do have lots of spending pledges). The best Cameron could point to in his speech was a list of items previously heralded during his party's conference, which will make but a small dent in the debt. If he is serious about getting serious and being direct then we need some more detail.
The grand plan seems to be a national loan guarantee scheme (ie using taxpayers' money to back loans to business). This sounds very much like more government intervention. Increased lending to business would be paid for in a Tory emergency budget in the summer by banks not paying bonuses now but instead lending the money. Cameron spoke in favour of infrastructure spending but with little in the way of actual commitments or time frames.
Towards the end of his speech Cameron stated that it was business, not government, that created jobs. But the problem with being in recession is that it is business which is shedding jobs. We can take some comfort from the fact that unemployment has not risen so far as much as many had feared it would. Nevertheless, the stark fact remains that if the government deficit had not expanded, or if we had followed Tory calls to cut the deficit now, many businesses would have gone to the wall and many more would be out of work. And the same applies to that part of the deficit which has been caused by saving the banking system - many businesses would not have made it through the winter without it. This hasn't been about government crowding out the private sector; it has been about government stepping into the gap as the private sector shrank. |
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The ABC at the TUC
I attended the Beyond Crisis conference today, which was organised by the TUC and Guardian. The main speaker was the Archbishop of Canterbury, Rowan Williams. I thought his speech provided much food for thought, focusing on the need for virtue in the financial sector.
I have been impressed recently by the way Williams seems to take his constitutional role as Archbishop very seriously. By that I mean he is not just the figure of authority in the Church of England and head of the Anglican Communion. The Archbishop has a responsibility to oversee the United Kingdom in a spiritual sense; to be a national pastor. And I think Williams is doing just this. |
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Bank reform - debate continues
Both the article in this week's Sunday Telegraph by Barclays CEO John Varley and a commentary on it by the Evening Standard's Anthony Hilton are worth a read. |
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Gordon Brown says stronger bank regulation not enough
Gordon Brown this weekend surprised commentators by calling for new measures to curb the destructive power of banks. Speaking at the G20 summit in St Andrews on Saturday, he called for new measures to be considered. These included an 'insurance premium' and a form of the Tobin tax.
This is exactly the approach we should have. New thinking, and action, is required before 'business as usual' prevails so sowing the seeds of the next financial crisis.
In the Spring of 2008 (about 18 months ago) in a submission to the government's review on financial stability, I argued for a banks insurance premium. I'm pleased to see it on the international agenda and being given serious attention by the IMF. |
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