When central bankers pronounce themselves publicly they are often perceived as being too dull, cautious or boring. But when the Governor of the Bank of England Mervyn King recently spoke to The Daily Telegraph he showed that he can be a “teacher, preacher and intellectual”.
He warned Britain risks suffering another financial crisis without reform of the country’s banks. He interpreted the sentiments of many business analysts, and not just those in the UK, when he accused banks of “routinely exploiting their millions of customers”. He went further in his scathing criticism when he said: “If it’s possible for financial services firms to make money out of gullible or unsuspecting customers, particularly institutional customers, they think that this is perfectly acceptable.”
Had these words been stated by some anti-capitalist politician or journalist, they would just have been written off as irrelevant babble.
The patronising way in which some senior bankers treat their customers and the media is now beginning to irk even the most conservative regulators who realise that, if the various western economies are to recover, small businesses and small investors need to be better served by the banks.
But what we often see are bankers who brazenly expect reverential respect from their “gullible customers” and reticence on the part of the media lest the trust that the public puts in them is shattered. No wonder Mr King blames the “payment of bonuses” as part of this cultural problem. Rather than care of their customers’ interests, many bankers aim to “simply maximise profits next week” so that they can then pay themselves huge bonuses.
According to a survey published by Money Management, a Financial Times publication, investors are forking out thousands of euros in fees on their pensions, with many of the worst performing funds charging the highest amounts. Moreover, complaints against banks in the UK have mushroomed in the last several months as more and more small investors are shaking off their inertia and reverential fear to challenge the unfair treatment of banks and financial services providers.
At the local level we are not immune to the worrying reality that for some of our financial institutions profits come before customers. One can understand the limitations imposed on local journalists to conduct meaningful investigative journalism to expose the exploitation of certain classes of customers of financial services providers. But this needs to change if we are to converge with the more advanced EU countries in the protection of consumers.
The setting up of an independent financial services ombudsman could go some way to address the need for more consumer protection in the financial services industry. It is important that the function of this ombudsman is independent from that of the regulator of the industry as this issue is primarily one of consumer protection and not of regulatory enforcement of good banking practice.
Our regulators have an important role to play to put the customer back on top of the list of the financial services industry’s priorities. Small businesses, for instance, need to be treated more fairly by being given the lifeline of finance that they need to grow. Small investors need to be protected from hard selling tactics used by bank staff who are often rewarded according to the amount of sales they achieve.
The regulators can also protect “gullible or unsuspecting” customers from aggressive marketing aimed at convincing people to borrow money that they probably cannot afford to repay. The property bubble built over the last few years can have serious negative effects on our economy if it is allowed to grow any bigger.
Banks should by all means support those who need to own their residence, as well as developers who provide these dwellings. But speculation needs to be kept in check by the enforcements of prudent lending criteria that manage the risks for both consumers and developers.
The small size of our economy where a couple of financial services providers dominate the market exposes us to significant systemic risk. This fact of life has often been highlighted by external institutions that regularly review the state of health of our economy. The worst risks are those that we do not know about, or which have been around for so long that we have become complacent about their implications.
Putting customers before profits is not a loony strategy of bank-bashing anarchists. It is simply good business thinking adopted by some best-of-breed financial service operators that are also found in our small market.
jcassarwhite@yahoo.com