Banks must do more to win back trust (Sunday Business Post Op-Ed)

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It was revealed this week in correspondence between the outgoing Governor of the Central Bank of Ireland and the Minister for Finance that the Central Bank is now open to the idea of removing barriers to bonus awards within Irish banks.  The banks themselves have been pushing this for some time, expressing particular concern about retention issues in respect of their most senior posts as well as their capacity to compete for recruitment of top executives from within as well as from outside the banking sector. British bank relocations arising from Brexit are also now invoked as part of the argument to facilitate higher remuneration by way of bonuses, even if a core pay cap of half a million euros remains in place for some banks. 

 

This possible shift in policy comes just over a decade since the ‘bailout’ of the Irish banking sector began in earnest in March 2009. In part, it was a culture of excessive bonuses and other incentives linked to high risk behaviour that fuelled the accumulation of huge liabilities within the domestic Irish banks, liabilities that were to eventually fall on the shoulders of Irish taxpayers.  Even now over a billion euro of public funds is required to service the annual cost of the bailout and subsequent public sector borrowings. For thousands of individuals the fallout from the financial crisis has included spiralling debt, court appearances, broken relationships, and worse.  And of course the political consequences of the crisis are still unfolding.

 

Unsurprisingly, public attitudes to the banking sector in Ireland since 2008 reflect very high levels of distrust and cynicism, with the recent tracker mortgage scandal confirming many people’s worst suspicions about how Irish banks view customers. A major report by the Central Bank last year strongly criticised the failure of the banks’ to address this.  However, the recent launch of the Irish Banking Culture Board (IBCB), funded by the five main retail banks, suggests the industry may be finally awakening to its responsibilities. For its part the government has stated its intention to introduce legislation to make senior bankers more directly accountable for their actions.

 

Questions have been raised about the independence of the IBCB given its funding and governance model. However the Board is not the first industry-sponsored body in Ireland. The Press Council of Ireland was created in 2007 under government pressure for newspapers to self-regulate or else face statutory regulation.  Its autonomy and authority have not been fundamentally challenged in the years since.

 

Choosing to put ‘culture’ in the title is slightly curious; with the exception of Culture Ireland (2005-13) no other body with a public function in the history of the Irish state has had an overtly expressed ambition to change the culture of an economic sector. The nomenclature raises obvious questions, including how to determine the nature of the existing culture, how it is proposed to change it, and who will determine that such change has indeed occurred? And is the Board itself to exist in perpetuity or is there a sunset provision for its existence?

 

Modern day financial institutions operate in a number of different cultural contexts. As well as their individual market brands and proposed ethos (note how banks sought to differentiate themselves from competitors during the Oireachtas banking inquiry), each will have their own internal organisational cultures and values that may be difficult for outsiders to understand let alone change. And there is a wider European and international banking cultural context within which Irish banks must operate, a point they have been keen to emphasise in recent discussions over CEO remuneration and bonuses.

 

The findings of the IBCB’s study concerning negative public attitudes to banks and banking culture should hold little surprise.  They are consistent with the findings of an island of Ireland survey undertaken as part of the ‘Apologies, Abuses and Dealing with the Past’ project by a team of researchers at Queen’s University Belfast.  Conducted just prior to the tracker mortgage scandal during June and July 2017, 77% of over 1000 respondents engaged in face-to-face interviews in 100 sampling points across every county felt that the banking sector had not adequately apologised for the banking crisis.

 

Although several statements of regret and some apologies were given by former and current senior bankers at the Oireachtas Banking Inquiry during 2014-15, 94% of respondents were unaware of any individual bankers having apologised. In fact more people believe that protagonists involved in the Troubles and the institutional abuse scandals of recent years have apologised than the banking sector or individual bankers for their role in the 2008 crisis.  The fact that the ICBC survey also found such low levels of esteem for banks suggests that the legacy of the crisis remains potent. 

 

Respondents felt that all of the major actors in the banking crisis have been slow to acknowledge and accept responsibility for their actions and resultant harm. Moreover, very few (4%) said they felt that Irish society should “just move on” at this point.

When asked via scales what the most important measures are for dealing with the legacy of the crisis, ensuring it never happens again by means of better regulation and attitudinal change was considered the most important measure by respondents (75%) ahead of alternatives such as prosecutions (67%) and compensation (50%).

 

An overwhelming majority of survey respondents felt that Irish banks have not yet fully atoned for their part in the financial crisis.  Different views did emerge about the utility of apologies to address this – only 40% felt that further apologies from the banking sector would help them personally, but 73% felt it would be helpful for society as a whole.

 

For many interviewees, the perceived absence of meaningful apologies for the crisis is connected to scepticism that banks truly want to achieve better customer relations. In the words of one project interviewee, ‘an apology is maybe only worth giving if you want to maintain a relationship with people’. 

 

The IBCB has noble ambitions about how bank customers should be dealt with in the future, and nobody doubts that culture change is long overdue within the sector.  However it should not ignore addressing the past as it seeks to plot a way forward.