Banking as a profession?
Here is another of my very lazy “blogs”, this one courtesy of a consultation document on the possible development of a bankers professional body in Britain.
The consultation is being carried out by Sir Richard Lambert, former editor of the Financial Times and former boss of the Confederation of British Industry.
He was asked to look at setting up a standards-raising body by the chairmen of Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander, Standard Chartered and Nationwide (the British building society).
Given our shared history, our integrated labour market and our small size, it is unsurprising to find that many Irish professional organisations are offshoots of their British counterparts, while some just “reverse engineer” the structures and rules of the British original.
So if there is to be a new British professional organisation – with qualifications! – for bankers, then it seems a fairly safe bet that Irish bank employees too will want to become “professionals”.
And the cheapest and easiest way for this to happen will be for Irish bankers to become members of the British “profession”, either directly or indirectly. At the very least such professional certification will make it easier to move to London to get a job with a bonus.
But being a professional is not just about social status (or snobbery) or even a ticket to a bonus scheme, as Sir Richard’s consultation document makes clear:
In one of its many damning comments, the Parliamentary Commission (on the banking crisis) said that “The professions may not be paragons, but they do at least espouse a strong duty of trust, both towards clients and towards upholding the reputation of the profession as a whole. In contrast…banking culture has all too often been characterised by an absence of any sense of duty to the customer and a similar absence of any sense of collective responsibility to uphold the reputation of the industry”.
Why do professions exist? One answer to this question is that professions such as medicine, the law or auditing all create public goods along with private benefits: they meet broad societal needs. So they need to be built on common standards of knowledge and behaviour, and citizens have to be able to rely on the knowledge and integrity of the practitioners in meeting their requirements.
It seems hard to argue that bankers do not have a similar role. A sound banking system is unquestionably a public good. We’ve learnt the hard way that poor banking behaviour creates public “bads”. Just as with doctors and their patients, there are clear asymmetries of information in the banking business, with bankers knowing a lot more about the detail of a product than their customers.
And in the words of a G30 study, “Financial institutions, unlike most other corporations, are licensed by society to serve the needs of society”.
All this lies behind the case presented in the Salz review for creating a body “bringing together those working in the industry, to encourage the sense that they are part of a community, constituted by the vocation or profession, with responsibilities for the industry and not just the bank for which the individual is working”.
Of course there are real difficulties in creating a professional body that would have to take in such a wide variety of different participants, with very different skills, experience, and compensation, and with business backgrounds that have been built up in a free-for-all environment. It would be a very challenging process.
But this should be the new organisation’s longer-term ambition.
The only constraint would be that the new organisation should not be seen as a banking lobby group. But it could seek to develop ideas at every level – from the academic journal to the popular press – and highlight issues of concern to the banks’ different stakeholders. By drawing on the insights it develops from working with participating banks and building societies, the new organisation could add value by sharing the best practice it encounters and by proposing solutions to future challenges that arise in the industry. It could also engage with groups undertaking a similar mission in other parts of the world.
Two questions follow from all this.
What would success look like? And would this structure, if it had been in place ten years ago, have helped to avert the banking crisis?
The answer to the first question is that it will take years to change the culture of the banking industry, and so to demonstrate beyond doubt the impact of the new organisation. But a crucial measure of success in the first instance will lie in the strength and integrity of its board, and in the breadth of participation by banks and building societies.
Then it will be necessary for the board to set out its clear and immediate priorities for action, showing where it is aiming to make an impact in the near future. In the face of what is bound to be a sceptical public, a sense of momentum will be important.
The answer to the second question is: of course the existence of a professional body would not by itself have prevented the banking failures. This project has to be seen as one piece in a much bigger jigsaw puzzle, in which the two biggest components are a strong and well-structured regulatory framework, and a different style of leadership at all levels of the banking industry. The new organisation should be seen as complimentary to these initiatives. Taken together, they will make a difference.
The final point to emphasise is that the new organisation itself will need time to become established. But it will also need an ambitious agenda against which its development can be measured over time.
As Mark Carney, Governor of the Bank of England, said in Davos in January “Banks must recognise that only exemplary behaviour can confer social licence to global financial capitalism.
“More fundamentally, integrity cannot be legislated, and it certainly cannot be bought. Only a perspective which takes into account the wider implications of actions can guide proper behaviour.”
Good luck, Sir Richard.
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