Banking StandardsWritten evidence from Stonehaven

1.1 Historically, British institutions and their methods have been held in very high regard around the world; for instance in Egypt when a business meeting, or deal, is failing to progress sensibly there is a common saying that is used, which is, “let’s do this the English way”... meaning let us stop arguing and being emotional and tricky; and instead put fairness, openness and honesty in place as the means to achieve a mutually satisfactory transaction. RBS’s conduct in the SWAPS scandal has brought global mistrust of a leading British profession. What was seen globally as a centre of banking excellence must now rank amongst the more dishonest and risky places to do business.

1.2 Because all of the major British banks embarked upon the promotion of SWAPS to SMEs at about the same time and because hindsight has shown that all banks were already facing troubles as the peak of the boom approached, it has to be in peoples’ minds globally whether The Bank of England itself was a party to those banks’ behaviour in this regard. After all, Vince Cable has publicly used the term “we are in the equivalent of an economic war” to indicate the serious levels of crisis, so suggesting that extreme measures have been/will be necessary.

2. Our Response to Question No. 2

2.1 All consumers are trapped in a market where SMEs have no profits to re-invest in either maintenance of quality and volume or improvement in products and services.

2.2 For all consumers, it is always the case that SME level of business is the lifeblood of continuity and growth. It is logical that those entrepreneurs, who are born to build proven businesses from scratch, are those that have in the past and can in the future become the nation’s leading conglomerates. Shooting stars die; even Marks & Spencer can fold if another Mr Marks and Mr Spencer cannot be recruited by them. How many major businesses have folder when the founder is no longer at the helm. Lady Thatcher saw that as a mantra and so championed small business in the nation’s best interests.

2.3 The economy is being held back because small business is being held back. History shows that Labour governments always have made the mistake of disregarding small business; and instead canoodling with big business, because big business fits the socialist dogma of dominance and control. The latter always fails. Success comes from freeing the vitality of the ‘new-born’ business. Nature does the job for us if we let it... it’s naturally so.

2.4 In effect, small business is what the government allowed (encouraged?) banks to target for their desperate survival as small businesses were the only ones who were modestly borrowed, by comparison to the banks and small businesses existed in sufficient numbers to equate to large cash sums in total; and small businesses tend not to be owned off-shore where cash that large off-shore companies own is inaccessible anyway.

2.5 The short-term need for huge cash rebuilding of banks’ balance sheets could only be met from a raid on small business but the medium and long term result of that manoeuvre is the stagnation and decline of the economy.

2.6 Some (New Labour and the Liberals) believe that investment in infrastructure will boost the economy (eg Boulder Dam and Thatcher’s motorways) but the problem is a different one this time; it is a problem of over regulation of and financial restriction and abasement (destruction) of small business like never before. It is a disease.

2.7 The disease (2.6 above) emanated from Europe (mainly France). Germany built its financial muscle in the 60’s and 70’s on the basis of cheap labour from Turkey (thus helping Turks); whilst others were striking and further empowering trade unions. So far, Germany has been able to stand back in amusement whilst further prospering during the mirage of the economic boom amongst its extravagant EU neighbours. Now, however, even Germany (the hardest working people in Europe) has to be fearful of contagion and, through Angela Merkel, have sought to hint at the facts by their reluctance to fund further unearned spending in other EU nations.

2.8 Germany’s hint is... let small business get working. Stop milking small business just because it’s the only on-shore cow in the parlour.

3. Our Response to Question No. 3

3.1 Whilst a bank manager was once amongst the pillars of society and a trusted purveyor of good financial sense, with a heart that beat to the rhythms of control of risk of both his bank’s money and yours, that professional underwent a metamorphic change into something akin to a door-to-door salesman who had revenue and profit targets and bonuses linked to them... indeed his P45 is linked to them.

3.2 The public had become punch drunk with New Labour promises of Utopia whilst holding the belief that public spirited stalwarts of sense and reason such as the banks were their guardians of economic sense, fairness and prudence. The public is now punch drunk from the many shocks of being so wrong about the latter.

3.3 The public barely retains hope that the banking sector can, by itself or by the impositions of others, even begin to return to its previous trusted status. The public is in dire need of seeing some ‘honest visionary’ individual of great skill and drive, who can dispense and will administer the bitter pill of necessity.

3.4 The public sees leading bankers, including the governor of The Bank of England, looking shell-shocked and impotent.

3.5 The public can see the banks re-filling their coffers but that is all they can see. They need to see more. They are prepared to work for more themselves if they can only see how. The youngest of the working generation are beginning to see their role as being the new-blood saviours but they can’t see the opportunity. That is because there isn’t the opportunity whilst small businesses are being milked and any small business that they attempt has to wade through quagmires of regulation where meeting one regulation means you break another... thanks to New Labour and the misguided EU. Once, a young person would have seen the banks as the ‘X Factor’ critic who had the knowledge and power and the will to enable them to succeed with a combination of a good idea and proper own commitment. Now the banks are one of the crocodiles to wrestle with as they try to paddle their canoe.

3.6 The public expects the banking sector to pull together with the rest by making sacrifices in all areas; to demonstrate contrition and community conscious endeavour; to abandon its elitist bonuses and perks; to be at the heart of rebuilding the nation’s strength; to demonstrate true leadership in a crisis in their domain that has so seriously affected all.

4. Our response to Question No. 3

4.1 We, quite seriously, consider Tony Blair and New Labour to have been the root cause of the problems in banking standards identified in question no.1. Although Thatcherism brought about the merging of the banks’ high street operations with those banks’ financial markets and merchant banking operations, it was the naivety combined with the insincerity of Tony Blair’s New Labour that broke the chivalry in banking.

4.2 New Labour the worshippers of Murdoc’s Sun newspaper. New Labour the insulters of the public’s intelligence. New Labour the media savvy hypnotists. New Labour who proved you can get away with anything in government, including punching the face of a traditional, if naughty, egg-thrower. New Labour who never found weapons of mass destruction that could reach the UK in 45 minutes. New Labour ministers who had never had a job let alone run any business. New Labour who cavorted with Berlusconi and Gaddafi. Finally, and most significant, New Labour who convinced the populous (including bankers) that they had brought an end to boom & bust. If the latter isn’t a licence to run amok with finance and lending without fear of wrong then what is?

4.3 Respectfully, we say that the Commission’s terms of reference with regard to this question no.4 are missing the point by asking respondents to consider the general themes (a) and weaknesses in specific areas (b).

4.4 Simply failed ‘Leadership’ has been the cause through and through.

4.5 However, looking at those general themes (a) and weaknesses in specific areas (b):-

(a)...

(i)There is nothing wrong with incentivised risk taking; providing that delegation and monitoring go hand-in-hand.

(ii)Globalisation likely may have had a role in bringing about a shift from responsible banking in UK banks and a severe lessening of bankers’ regard for the national (and nationals’) interests, reputation, standards and culture.

(iii)Without any doubt the banks, especially US banks, had designed financial schemes and products that regulators failed to understand but still rubber-stamped anyway, eg packaged and distributed sub-prime mortgages. However, much sub-prime existed in the UK due to New Labour’s end of boom & bust pronouncement (see 4.2 above).

(iv)With poorly regulated financial innovation it only have the same end as any other poorly regulated creativeness; in Africa you can see motor bikes repaired and rebuilt with wood frames, cars overloaded beyond chassis strength, excess car/bus passengers with legs and arms hanging out of doors and windows. However, standards and culture in the UK have been in progressive decline for decades and that emanates from the civil service and its Unions. For example a solicitor acquaintance is married to a local government civil servant and told me of hearty household debates about events such as when the local government involved became concerned that staffs were leaving at 4pm every Friday when the office actually closed at 5pm. The Authority decided to change the time for office closing on a Friday to 4pm to stop wasting heat and light and to regularise the 4pm departures. The result was that staff ceased to return at 2pm on Fridays because it simply wasn’t worth coming into the office for just 2hrs! Even in the 1960’s the civil service was leading this decline; I was a young man working on a lorry delivering concrete blocks to building sites and at all the private developers sites we would carefully unload each individual block (by hand) and neatly stack them for use. One day we had to deliver to a council site and the site foreman instructed us to throw the blocks off of the lorry onto a mountain of broken blocks... of course, almost every block broke upon landing!

I have a lifelong acquaintance that has had a career in teaching. Early in his career he told me the only way one can get rid of a bad teacher is to recommend them for promotion!

The NHS sets an example of similar failure of public duty. Three quarters of NHS nurses are Agency nurses who get their work without commitment to the NHS as an employer... more non-commitment and lack of regard other than for self! Is that an example to bankers? I think not.

(v)Technological developments should not have an impact on standards and culture but they do. The American style of email address using “Hi” promotes over relaxed attitude and attention to formality and both factual and ethical correctness. “Hi” may well not do so in the USA but in the UK it does because it seems childlike and non-committal.

(vi)The main banks have become too big, too powerful and able to cooperate unhealthily if not even form cartels. Investment banking has allowed itself to pretend to be operating in the same way as a high street bank, ie as advisors to business borrowers. No other cutthroat sales operation is allowed to sell in such a way as to disguise its pitch as professional advice.

(vii)SWAP scandal evidence suggests that the main UK banks have not effectively competed but, instead have shared ideas for duping customers. They may have competed in bidding to take over other banks as I am told that Barclays were second best bid for the Dutch bank ABN Amro.

(viii)It is a concern that the banks have taken a lead in using offshore tax avoidance. Whereas that may be legal, is it ethical when duping SMEs with SWAPS when those SME’s are also usually taxed in the UK?

(b)...

All of the specific areas listed as possible areas of weaknesses may be due closer attention but it will never overcome the underlying problem. Politicians, civil servants are setting the bad example; yet they are the legislators and regulators; get them acting correctly first and then they are able to tell others to do as they do and gain rightful respect in the process. Start there! To have a properly functioning team, business or country there has to be ‘leadership’ than can be respected; one that sets the example and thus merits compliance with its demands.

There is more regulation than regulators can cope with. Cut regulations, champion enterprise and condemn (meaningfully so) political and regulator incompetence, weakness and mal-practice.

The UK and its banks are suffering the EU contagion (see above).

The example the UK needs can be found amongst its SME entrepreneurs. They get what they earn. They have commitment. They lead by example. They take measured risks and back that with all their personal worth. Free the SMEs, they have already proved they ‘can do’. Cease robbing them to oblivion. Make the banks repay the ‘borrowed’ SWAPS gains. The UK’s SME’s will, by peerless proven track record be the drivers of renewed UK growth. They will, themselves, regulate the banks by assurance of not permitting themselves to be bitten by the same dog twice. They will remind banks that banks are suppliers not customers. They will make the banks compete. The UK’s hope in the short, medium and long term is its SMEs. What we described here is what was done by a Labour government immediately after WW2... they set SMEs free. New labour shackled SMEs. Undo those shackles. Free the enslaved SMEs.

That is all you need to do. It worked after WW2. It will work this time.

Champion the SMEs.

Lastly, I recently attended a ‘top 150 south-west companies’ seminar at Exeter university. The main speaker was the chairman of Flybe. A university official asked him what was most needed in terms of young recruits. The speaker announced that the university official would not like the answer. The speaker’s answer was, “Fewer university graduates who have never had any practical experience and more apprentices”. Immediately post WW2 apprenticeship was widespread and it was another feature that rebuilt Britain. In our industry all we see are ‘Oxbridge’ style reams of repetitive regulations that mean nothing at the ‘coal face’. One government department contradicts another (eg anti-scald measures) and apunch drunk disbelief asserts itself in the place of worker willing trainable.

Getting Britain working means making the banks refund ill-gotten billions taken from honest and hard-working SMEs. The UK needs a return to growth. SMEs will do it—Its common sense.

2 September 2012