Thursday 16 May 2013

Armageddon to change or vice versa

Many of my articles focuses on conduct, culture as well as on values such as trust and integrity with a primary interest in the financial sector where much work is being done and certainly much more needs to be done. People still have very little trust in their banking system simply due to the entitlement culture which simply has to change. The Cyprus situation would send a shiver down any one’s spine. Allow me to recount a small story. The other day a friend of mine approached me and wondered where the safest place was to put her money as she had little faith in the system.

My initial response perhaps half serious was informing her to simply keep her cash under her mattress. She responded with a genuine concern of burglary or break in. What about real estate? She asked. The problem with this was that if anything happened to the banks which appears increasingly likely, the real estate market would plummet rapidly as their value was more often than not controlled by the banks through lending. Then there is the difficulty of the bank’s exposure to sovereign debt which becomes a nightmare when sovereign debt loses its credit worthiness as we can see with Greece, and maybe Spain and Italy. The Greek debt crisis is in fact what caused the Cyprus Banks to fail or more simply put from poor misjudged lending. Currently the UK is losing its credit rating which ought to add to our concern. Then there is the question of interest rates that may go up which will lose the value of bonds held by Banks. So at this stage these large banks unless they become more and more transparent and change their culture, are of a definite risk and in a fix.
She pressed on ‘So where then do you think I should invest or deposit my money?’
Well I told her a story of a banker who described the bank he was working  in. This was a small bank that had a specific purpose of only investing in sustainable development. Not to mention that its investments were made with the highest ethics and of integrity. Many of its services were a lot the same as any other banks such as payments, small loans and savings. The CEO fixed salary was not allowed to be more than 10 times more than the least paid person. There was no bonus except a few hundred Euros if the bank had a good year, which was distributed equally amongst the entire workforce. Bankers were knocking at their doors for employment.  Its assets were rising fast. Its employee workforce was doubling every year. This bank offered a purpose and a mission for its employees. On top of it all it offered job security, morale was high and people were happy. Their only challenge was ensuring the people they recruited had the right mentality. Here is a rare example of a bank that operated purely in the interest of its customer with the highest ethics and for a worthy cause.

I told my friend that this was the safest place to deposit your savings at therefore at minimal risk.

In brief, the large banks are really standing on the edge of armageddon. Have they burnt their bridges? Or is it too late? Angela Merkel pointed out that in future banking crisis’ it is up to the banks to save themselves with no aid from the tax payer. Mervin King, the Head of the Bank of England warned us upon his retirement that there were more Banks out there that will be needing support. I think the message is quite clear. Really what we need to see is the break-up of the larger banks as soon as possible, to separate the savings and normal services from the investment side. Nothing is secure at this stage. Another solution is to set up smaller banks like the example I gave with a sense of purpose and a belief in positive change. Both examples will not only re-instil trust but will also increase employee morale, job satisfaction and customer loyalty.

Our ultimate challenge is a change that is required in many parts of our wider business culture and that requires a change of mentality implying a change of heart and a better grip of our own conscience which the world is so desperately seeking. We all know how hard that is where money, consumption and our desires are concerned, less helped this time by my heading. This leaves me to wonder whether there must be something greater at play here. Which side of the coin are you on?


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