A ‘coalition of the willing’ for banks

It’s not regulation but education that will help prevent financial crises. So why isn’t there more official muscle behind the mission to professionalise banking? SIMON THOMPSON asks.

The financial crisis wasn’t really about the complexity of new fangled products, as many suppose. It was about the failure of old fangled banking.

I’m paraphrasing, but this was what made us all sit up as we listened to FSA chairman, Lord Turner’s tour de force keynote speech at the Institute’s annual dinner. His analysis has even greater pertinence in the light of the new coalition government’s reformist agenda.

Analyse the numbers, he tells us, and you’ll be shocked to see just how much the “ghosts of banking crises past” also haunted this one: bad commercial real estate lending and over-risky reliance on wholesale funding.

“What is it about banking,” he asks, “that sees us making exactly the same mistakes all over again?” The answer, surely, in the mood of the times, is to create a Coalition of the Willing in our industry to rekindle the principles of professionalism and ethical behaviour which have withered.

Lord Turner acknowledges as much. Professionalism, he says, is about “making sure you serve your customer’s needs, even when you could make money out of not serving those needs – that’s what broke down”.

This principle has always informed the Institute’s teaching programmes. But here’s the problem: if professionalism is the key, as we agree, I’d like to see the FSA – and our new Ministerial team, for that matter – being a great deal more assertive in promoting the value of professional body membership.

Membership can never be compulsory to re-create old fashioned closed shop guilds, but there ought to be a much more explicit statement of the regulatory dividends for both individuals and banks that support the professional bodies’ qualification and standard-setting work.

You can’t regulate to stop the industry from “making exactly the same mistakes all over again”. But you can educate to exorcise those bad banking ghosts. Just as competing political parties have come together in the national interest, so it is time for all the UK's banks, regulators and professional bodies to combine in raising professional standards across our sector – in the public interest.

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