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Banks; libor-fixing, money laundering, where does the buck stop and accountability start?

Written by on 12 December 2012

The last few years have not been great for banks and the reputation of bankers as a profession. Whilst bankers are not alone in the corporate world for showing staggering self-interested behaviour they have however been singled out by the public for increasing high levels of distain and derision.

Not only has the cause of the financial crisis (the worst in history) largely been placed at the doorstop of the international banking industry but the problems continue. The recent libor-fixing scandal has already seen Barclays Bank pay £290m in fines for their part in deceit and with more well known banks also reportedly about to follow suit.  

Bank of England

Although the Banks have defended their position by suggesting the problems lay with a small number of derivative traders and executives who wished to protect the bank (and the shareholders) by reporting a better rate (Libor is the rate at which a bank can borrow money from other financial institutions and is often seen as a key indication as to the financial health of the organisation) than they could actually justify, in effect lying to the market.

This rate has always been relatively self regulated and seen as a measure of the high levels of trust that the financial community placed in the integrity of the professional banking industry – a trust which was shaken and has now been shattered.

Bob Diamond & Marcus Agius

Although this scandal lead to the resignation of the Barclays chairman Marcus Agius on the 2nd July, followed by Bob Diamond on the 3rd of July 2012, very few other individuals have either been forced to resign or faced prosecution. These high profile resignations have been allowed to exit the bank, with large financial remuneration packages as part of their resignation agreements, whilst remaining respected members of the financial business community.

The shocking exposure of the libor-fixing will run and run and is likely to be identified in a number of other banks. However, even before the public could catch a breath at the duplicity of the ethical corrosive forces at play in our financial institutions, the breaking news of money laundering burst onto the international news landscape. 

The news that HSBC has agreed to pay £1.9bn in settlements for their part in money laundering is perhaps the final straw in the credibility and trust that the banking industry once enjoyed. Perhaps not surprisingly HSBC are not alone and a number of other banks are also reportedly in the final stages of finalising settlement terms.

Libor and money laundering combined with the ongoing swap mis-selling claims make it difficult to see how these institutions and the individuals that lead them can ever be trusted again.

Whilst I fully understand the sensitive and critical part banking plays within the international financial markets, it is imperative that these institutions have credibility and are trusted. So where do we go from here? I think it is almost impossible for these institutions to rebuild the trust required whilst the same people are still in post in leadership positions. This is far beyond the main board, it percolates throughout all levels of the industry and requires root and branch radical reform.

If an industry is serious about its reputation you need to recruit and select people who are trustworthy, people who reflect the values and are prepared to maintain the standards of the wider social and business community. This kind of culture cannot be built solely on a transactional management philosophy; chucking money at the problems does not buy integrity.

Banks need to start to select people, who from day one, understand their values and ethics (anyone in society should be able to have these explained to them and agree with them in a simple short statement – what do we stand for and why!) and have the courage to follow these through. Organisational culture needs to change but this will only happen if the organisations also reform their management systems. As an example the reward mechanism and promotional criteria must reflect the critical values and ethical nature of the business and not be solely focused on individual financial performance.

I am not suggesting the financial performance is not important, far from it, I am suggesting that the key to long term financial health of the business is closely linked to sustainable policies and decision making. The secret of this kind of decision making is related to ethical policy and values driven behavior that the wider communities can understand and subscribe to, even if the environment is tough and challenging.

For further information regarding this article please contact ivanyardley@businesscommand.co.uk

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