It’s time to stop bashing the banks and move on
First published in the Sunday Times on 29th November 2015.
I recently heard an excellent speech by Sajid Javid, the business secretary, at the Legatum Institute, where he proclaimed himself a proud capitalist.
He complained that for many capitalism is a dirty word, and that a fair proportion of the public are disillusioned by our economic system. They think that big business is inevitably corrupt, and that capitalism always leads to too much inequality. Also, the secretary of state correctly said that capitalism had failed to cover itself in glory over the past decade.
His statements may be true, but he missed a vital nuance in people’s thinking. I do not believe all business is demonised by public opinion. The one specific sector that is blamed much more than any other is banking. It is seen as the principal villain of the piece — fairly or not.
Enemies of capitalism deliberately conflate banking with business as a whole because they know people mostly take a dim view of banks. But if banking can improve its reputation, business in general will be seen in a more favourable light.
For those who hate free enterprise, banking just keeps on giving. Its excesses and mistakes were blamed for the great recession. The sector had to be bailed out on a huge scale by the taxpayer. It is dominated in this country by an oligopoly of unloved giants that are all too easy to dislike. Top bankers are frequently paid enormous sums. Often, as in the case of RBS’s Fred Goodwin and his huge pension, they appear to be egregiously rewarded for failure. From mis-selling of payment protection insurance and interest-rate swaps to Libor manipulation to money laundering, banks are seen as unethical organisations, riven by endless scandals. For the past few years the bankers I’ve met have often appeared embarrassed to say what they do for a living.
But banking is not an industry we can afford to hate. It is a utility that makes modern life possible — commercial and domestic. Beyond taking deposits and making loans, banks facilitate the transmission of money in society, enable citizens to be paid and buy their homes, and help businesses to trade, export and prosper. Also, in Britain, it is not simply a matter of retail banks — the City of London is an incredibly important wholesale banking centre, and a big part of our economy.
The overall contribution to the economy by the banking sector and related financial services is considerable. They generate a trade surplus of more than £60bn — vital to our balance of payments. They account for 12.6% of economic output; generate 12% of tax receipts; and employ more than 2m people, which is over 7% of the working population. Also, financial services accounts for about one third of all foreign direct investment into Britain, more than any other sector.
Britain has the fourth-largest banking sector globally, and the City has more banks than anywhere else. We diminish it at our peril. If we relentlessly disparage banking, and punish it through excessive regulation and onerous taxation, activity will move elsewhere. The idea that we can easily replace the jobs, tax, investment and exports the sector generates is fantasy. We will never create institutions like Barclays, Lloyds, RBS and HSBC again. Undermining them will not make us richer. As a nation we need to play to our strengths, and banking is certainly one of them. We should not be ashamed of our success in this field, but recognise its merits.
The industry has been poor at justifying and defending itself. As a whole, banks need to communicate better about the value they add. They need to win hearts and minds at all levels of society. Almost no one in this country appreciates that Britain is one of the few nations where free bank accounts dominate. I do believe that the vast majority of bankers here are trustworthy and sincere. They are not perfect, nor saints — but they are trying their best, and mostly do a pretty good job. Contrast that with bankers in many other countries.
Increased competition for the traditional oligopoly of banks is healthy. I sat on the board of challenger bank Metro for a few years, and saw how it helped to bring better levels of customer service to the sector. Over time, a broader choice of banks will be good for both individual and commercial borrowers, and deposit-makers.
Britain and its banks must move on from the sins of the past. The financial collapse was seven years ago. A new generation of leaders now runs the industry. Fresh codes of practice, new standards of behaviour and better business models should mean that the blunders and wrongs are not repeated — at least in my working lifetime.
Entrepreneurs need banks to lend to them to fund businesses and create jobs; we need banks to finance housebuilders to construct new homes; and we need a reformed and renewed image of banks as important, trustworthy cornerstones of our society.