Banking On The Culture

Back in the days ... I know, here I go again into history but bear with me ... your average Bank Manager was considered to be the pillar of local society, rather than the pillock as they are being sometimes unfairly portrayed today (that is, if you can find one!). Banks, or at least those with which I was familiar, had something of an aura about them, and the people who worked in them were respected. You went to the Bank because you needed them more than they needed you. They knew all about you and your business anyway, because it was common knowledge in the town. Everyone knew your business.

If Mrs Jones went to see her Bank Manager it was probable that she would be sat down, handed a cup of tea and given time to talk about her most recent question about investing. The Manager was quite likely to say, "I wouldn't advise that one Mrs. Jones, there will be others". No business for the bank on that occasion, then, and no performance bonus for the Manager for not selling a product! There were no bonuses.

By the time I hit the banking industry as a filing clerk and then as a teller, I used to see my Manager arrive around 10  a.m, do a quick tour of the banking hall, go to his office and read the newspaper before heading off for lunch around 12:30. Return around 2 - 2:30 sign a few papers and be out of the door by 4 p.m. Looks good, I thought, something to look forward to in the future, if I get that far. But the banking industry was way ahead of me. When I first became a Manager I was in the office by 7:30 and left after everyone else had left. Visiting customers in the market, trying to attract new business and build up the existing ones - everything that commercial bankers do today, really. Act as salespeople. But back then - still no bonuses. In Hong Kong your "bonus" was a 13th month payment, paid to all staff, if the Bank had a good year.

But then there was this thing called "culture". The dictionary definition did not really do the word justice. It was rather cold and clinical. I remember an occasion as I had just returned to Hong Kong to take up a new and senior position, being asked by a journalist to define the "culture" of HSBC. It was all about values, discipline, honesty and loyalty. A remarkable lack of "office politics", a cohesion of thought and principles.

And it seemed to be the discipline, and an understanding about doing the right thing not just paying it lip-service, that were keys. About leading by example. Indeed, HSBC was seen by some as being overly militaristic, and was sometimes criticised for appearing out-dated, irrelevant, and less likely to attract the brighter university graduates. Hmm! 

But the outpouring of anger about banks and bankers behaving badly has had me thinking more about what changed. Why, today, do banks find themselves in a dark hole with steep sides and little sign of redemption?

And it seems to me that a negative change in culture is an underlying theme.

Frankly, there were fewer rules in the past because the "spirit" and the " fundamental principles" of proper behaviour were clearly understood. Then came the new rules, followed by the people who spent their time trying to exploit the potential loopholes, and thinking less about what was right or wrong. Or they were trying to gauge just how far over the line they could go without being seriously penalised. So it's the behaviour - the culture - surely.

As banks became larger, usually by acquisition, they sometimes allowed the acquiree to inflict some of their culture on the acquirer so they didn't feel totally shut out of the acquisition process. And if it was a slightly more relaxed culture, what was once rigid and well-defined became more opaque. And if that was acceptable at the top - it was by definition as sure as hell acceptable lower down the organisation. After all, the shareholders wanted ever better returns, the analysts were judging you quarter by quarter, the regulators were not exactly keeping up - and while things were going well, nobody turned a hair.

And as an aside, it is now somewhat interesting to hear Sandy Weill, the architect of mega banks, now saying that big banks should be broken up. Hindsight's a wonderful skill - although I am not entirely in agreement with the concept that big is less safe than small, for a variety of reasons.

But the biggest cultural change of all? Money!

We had got used to the idea of the investment banking community being paid bonuses - but those got larger and larger, as did our eyes at the amounts being paid out. We were used to the idea of dealing rooms being treated differently, and the traders being paid bonuses. But eventually it came to the turn of the commercial bankers - the high street banks - to be paid bonuses.

When the Global Financial Crisis hit us in 2008, we blamed the investment banks for being greedy. Bonuses were huge. Products had been created - in the knowledge they were unsafe - but it didn't matter. It meant money in the pocket of a magnitude unimagineable. 

But here's the final change; the commercial banking staff were becoming eligible for bonus payments. A new phenomena for them, and when there is money on the table for the taking, even if it doesn't match the investment banking pay-offs - what happens to the old style adviser/bank manager I mentioned earlier? It's out of the window with the boring but tried and tested methods, and on with the glitzy "let's sell everything" attitude because it affects my pay!

Yes, it's a generalisation, of course.Not everyone behaves badly, but it doesn't need that many to bring down the walls?

This is NOT all about an unwillingness to progress, or a gripe about bonuses. It is not about analysis, and shareholders and profits and governments and regulators and rating agencies and the media ... it is about behaviour. Plain and simple.

If the banks want to regain some of their dignity and reputation, they will have to consider their culture. And that starts from the top. Visibly.

Sadly, from my perspective, it seems that the investment banking community hasn't changed - and that will be up to their clients, collectively, to make them do so. But for the man in the street, and for the popular media who are busy demonising the commercial and retail banks, they will want to see positive change in their institutions (not necessarily all institutions are tainted), and see a return to a culture with which they are more familiar. 

Comments

[Having A Go]

Talking of sticking your oar in - can you tell my bank manager to find my stolen money without charging me for the effort of getting it back and quicker than the three months they advise it'll take to return?

In the broader sense of the culture of behaviour to which your post addresses both within banking and other service industries, it seems to me that this is a view shared by many and, encouragingly, by younger people as well. (I'm one of the younger people - just FYI.) I wonder whether social media has forced the issue and that, like men's fashion, change is coming via a return to the ways of the mid-twentieth century.

My youth prevents me from articulating my point as eloquently as you do yours, but I hope that makes sense.

[David Eldon]

BIG difference between the attention paid to Sandy Weill and your humble blogger.
Also, I am not entirely convinced that I would go as far as to say that the repeal of Glass Steagall was entirely the cause of the problem. And I would point out that even if the Vickers report had been adopted 10 years ago for example, in terms of separation of investment banking and commercial/retail, Notthern Rock would still have happened, so would HBOS, and so on ...
Banks should be too strong to fail, not too big.
Nevertheless, happy to stick my oar in when possible.

[Man in the Street]

Note that Sandy Weill made front page news last week simply by stating that the repeal of Glass-Steagall was a mistake. It would be meaningful to see other former chairmen follow suit.

[David Eldon]

Nice to know that someone thinks I still have a voice! Thank you.
I do what I can, but recognise that as someone who retired from full time employment in the financial services industry over 7 years ago, I suspect my "advice" falls on fewer ears these days.

[Man in the Street]

Why not do the right thing now and use your voice to advocate re-regulation of the financial services industry. Strict separation of investment and commercial banking, bans on proprietary trading, making the board and chief executive responsible for compliance, etc.