CASINO JIBES DO OUR BANKS NO JUSTICE / THE FINANCIAL TIMS COMMENTARY & ANALYSIS ( VERY HIGHLY RECOMMENDED READING )

Casino jibes do our banks no justice

By John Varley

Published: September 23 2010 16:28

The subject of bank reform is topical. As the past days have shown, a debate rages. So complex and abstruse is much of the post-Lehman reform agenda that it is easy to lose sight of the wood because of all those eye-catching prudential, systemic, counter-cyclical and risk-adjusted trees. So it is worth asking: what do citizens and bank customers want to come out of the reform programme? I think they want to know that taxpayers’ money will be repaid; that banks will neither have to be bailed out again nor be in some unique position of state-protected privilege; that bank pay makes sense; that credit-worthy applications to borrow will be answered with a yes; and that their deposits are safe. In a word, this set of reasonable expectations could be summed up as “trust”. And there is understandably some impatience to see it restored.

Progress on reform has been good. The Basel recommendations on capital, liquidity and leverage will be ratified soon, achieving in 18 months what previously took 10 years (and was never fully implemented). The Group of 20 nations’ global pay standards are being implemented across many markets. Banks have already built higher and better capital ratios, have reduced leverage and hold many more liquid assets.

But regaining trust will require more. It requires reconnecting with stakeholders on a different level. In many ways, banks have a simple role in society. We help customers take appropriate risks. Our business objective is to make it easier for people to do some of the things that matter to them and which, collectively, can have a significant impact on economic growth. Customers that I speak with want to move on from the recession and want to know what banks are going to do to help them. It is a fair question.


The general features of rebuilding trust are an admission of past mistakes, contrition, gratitude for the help that has been supplied, sincere and credible collaboration on the reform package, the prevention of recurrence, the expansion of lending, and ensuring that pay is consistent with the minimum needed to remain competitive, and no more.


The core of banking – money transmission, safe storage of deposits, maturity transformation, provision of investment advice and trading and market-making – are all basic ingredients of a strong economy. We must stand by our customers and clients by helping them take appropriate risks such as buying a house, saving for retirement, starting a business or raising finance to expand overseas. If we do these things well, society benefits because successful banks provide products that make their customers’ lives simpler, that create jobs and pay tax and dividends.


Those of us in broadly based, universal banks have a further obligation: to describe, in understandable ways, the work of our investment banks. It is not the work of a casino. Offering a fixed-rate mortgage to a first-time buyer (a derivative is needed to do that) is a real economy service. So is offering a farmer the ability to hedge his euro farm-support payments to protect his business from swings in currency value (which also needs a derivative). If our stakeholders think of these activities as gambling, then we need to do a better job in explaining this part of our work.

When I think about restoring trust, these are things that are on my mind. Banks must not be mute while the difficult trade-off between nurturing economic growth and creating a more resilient financial system is engineered by governments and regulators; and we must confront the irreconcilable exhortations of “Lend less, because your irresponsible lending created this crisis” and “Lend more, because the economies of the world will not recover without more credit”.

In the UK, the Independent Banking Commission and the Treasury Select Committee will shine light on these issues, and I welcome that.

The banking system has displayed many failings over the past years. As the chief executive of a big bank, I regret that. But it should not cause us to lose confidence in finding the appropriate remedies, nor in our ability to restore stakeholders’ trust. Trust will take time to restore and involve the creation of a myriad of small sources of customer satisfaction. Our obligation is to stand by our customers and clients, providing them with services they need as they, substantially through private sector endeavour, restore the world to its growth trajectory. This is what they expect of us – and this is what is necessary to restore confidence, to secure economic recovery and to create a more stable and resilient financial system.

The writer is chief executive of Barclays

Copyright The Financial Times Limited 2010.