Banks are neither all bad nor the sole cause of the financial crisis. It’s time we had a grown-up debate about what to do next
The challenges facing the banking industry over the next few years are immense.
The UK has suffered one of the deepest recessions on record and, although now climbing back, has been slow to recover. Changes to build a more stable future have already been made in the UK so our banks are holding more capital and more cash – much more than in almost any other country.
While this has stabilised the industry, it is simply not possible for banks to continue to both hold more capital and lend more.
And we are still deeply in debt. It wasn’t just individuals who went on a spending spree, the country did too.
The failures were spectacular – and that includes regulation.
So regulators everywhere have to decide what to do and what changes to make. The UK’s voice now carries little weight. Not only were we badly hit by the financial crisis but UK authorities had toured the world beforehand saying how good our regulatory structure was.
As a result, there has been a rush to over-compensate and lead the charge for change.
Other countries are counting the cost of the changes the UK has already made – before deciding whether or not to adopt them themselves. Each country is looking to local concerns. That’s because regulation is not cost-free. It has a very serious impact on the wider economy. So it is vital that any additional changes are made to a timetable that does not set back recovery because that could hurt every individual and business in the UK.
So what should be done?
We need to strengthen our capital and liquidity regime to make banking more robust and better able to withstand the ups and downs of global finance.
And we need to make changes in other day-to-day areas, addressing customer concerns in the all-important retail banking sector. All the studies show that bank customers in the UK have more choice and lower costs than those in most other countries. They pay less for their credit cards, for loans and for simple transactions such as direct debits and standing orders. There is also an ombudsman to take up complaints and a vociferous consumer lobby.
So, when the Financial Services Authority moved to what it called a principles-based regime, and swept away the rules that had given certainty both to the industry and to the consumer, it was a mistake. Since then, there have been all sorts of interpretations about the principles – but few hard and fast rules. This has helped no-one.
So, I believe, the retail regulatory framework needs to be put back on a firmer footing – without jeopardising the benefits customers enjoy here.
All change needs to be coherent, co-ordinated and carefully thought through. Impact needs to be understood. Change has to be brought in carefully and in conjunction with the industry. It must be implemented in a considered way, not rushed at like a bull at a gate. And the public needs to be involved so change comes after a proper, adult debate about the consequences of different courses of action.
Banks face an uphill climb to restore their reputation and public trust while the political – and consequently the regulatory – landscape is changing around them. Nobody is listening to the industry as everyone assumes the things we say are self-serving.
This is unfair. Although some banks had problems, most did not. Banks have accepted their share of the blame – but not all of the financial crisis was down to them. Banks do not run the regulator. They do not run the central bank. And they do not run the government’s fiscal policy either.
I know banks are never popular but, nevertheless, they are needed. A modern and vibrant economy requires them to operate sensibly, provide competitive services and make money.
It’s time to stop demonising success: profit is a good thing – not bad.
Angela Knight is chief executive of the British Bankers’ Association. She will be speaking at a Public Finance round table debate, ‘The people’s banks: where next?’, on Tuesday, March 30
