Until bankers are held to account, there will be no end to bad behaviour
AT a conference in UCD this summer, Patrick Honohan, former governor of the Central Bank, spoke of “catastrophic amnesia” to describe the propensity of institutions to blot out the memory of previous failings, only to repeat them not long afterwards. And so, just as Mr Honohan predicted, last Friday Ed Sibley, current deputy governor of the Central Bank, railed against the “catastrophic failings [of banks] in dealing with customers impacted by the tracker mortgage scandal”.
No sooner were the banks back on their feet after a €60bn bailout, paid for by every man woman and child in the country, than they are at it again, gouging their own customers to inflate their profits.
What is wrong with them, we ask? Will they never learn? The bitter irony is they are at it again precisely because they do learn.
They learn that they operate within a corporate and wider culture that grants immunity to anything short of a stick-up with a gun and a balaclava.
There is a psychological principle that says behaviour is a function of consequences, which means that if there are no punitive sanctions for bad behaviour, then it is likely to be repeated. It is even more likely to be repeated and become a habit, a taken-forgranted way of ‘how things are done around here’, an element of the ‘culture’, if the behaviour is rewarded.
In this context, it would be extremely interesting to know whether any executives in the delinquent banks were rewarded for their successes in depriving customers of their entitlement to tracker mortgages. They certainly were not punished.
When Matthew Elderfield came to town 10 years ago to clean up bank regulation, he said: “What is needed is invasive scrutiny and effective sanctions.”
We don’t have either yet. After several years of ‘challenging the banks’ to come clean on the number of cases and to compensate affected customers, without much success, the governor of the Central Bank told the Public Accounts Committee last week that he was continuing to “challenge the banks” just to state how many cases of customer abuse they had committed.
One stonewalling bank had yet to give any information. So much for the “invasive scrutiny” capacity of the Central Bank.
As for “effective sanctions”, the Taoiseach has shaken a stick at the banks, instructing the CEOs to appear before the Department of Finance, where they faced the threat of errant institutions being named and/or the prospect of financial penalties being imposed on the their bank via a levy or a tax.
Leo Varadkar surely knows that naming and imposing a levy on a bank will have no effect in driving what Ed Sibley calls for, “permanent and robust change in the culture of the banking system, so that it can be trusted not to fail, to hold sufficient capital, to manage risk effectively and to put their customers first”.
Imposing sanctions on the institution does not work. In ‘Too Big to Jail’, a study of how corporate prosecutions fail to secure “meaningful structural and ethical reform” within delinquent companies, the author, Brandon Barrett, concludes that prosecution of high-level individuals is far more effective than what he calls “cosmetic” prosecution agreements with companies.
Elderfield also introduced a test of “fitness and probity” for anyone aspiring to hold a senior management or board position in financial institutions. If these rules are to mean anything, every bank director and senior manager involved in the mortgage scandal has to be reassessed by the Central Bank to see if they still meet these standards. If not, they must be barred from ever working in a bank again.
In all of this, it is vital that we don’t lose sight of the catastrophic consequences for individual customers who were treated so shamefully by their bank.
It is heartbreaking to hear them tell how their lives have been blighted by the treatment they received, and continue to receive, from their banks.
When you hear these stories told on radio or TV and minutes later you get advertisements – for example, from Permanent TSB, inviting you to “get more from your mortgage: we keep giving, so you can keep living” – it is stomach-churning. Bank websites and marketing messages are full of this froth.
AIB’s “principal brand value is we put our customers first”. For KBC, “Our ‘Bank of You’ approach shines through all our products and services in our dealings with customers, our
The thousands of citizens who have suffered because of their trackers being withdrawn have been failed ultimately not by the banks, but by the State, which left them swinging in the wind and at the mercy of banks
shareholders, our team and our community.” BoI’s customers “will feel the difference when they do business with us”. Indeed.
The eminent Irish philosopher Philip Pettit goes to the heart of the problem in his book ‘Freedom: A Moral Compass for a Complex World’, which is essentially a treatise on the instruments that a mature republic must install in order to protect its citizens from abuse by powerful institutions of the state or otherwise.
Pettit highlights the unequal battle that ensues when an individual citizen seeks redress for what they perceive as an injustice inflicted on them by organs of the state, such as the gardaí or the HSE, or by powerful institutions like the banks.
The lone complainant, he notes, faces an adversary which has bottomless pockets, endless patience and, above all, anonymity. “You’re on your own”, as a headline in the
Irish Independent last week crystallised the plight of people who are still fighting for a fair resolution of their claims.
The thousands of citizens who have suffered because of their tracker mortgages being withdrawn have been failed ultimately not by the banks, but by the State, which has left its citizens swinging in the wind at the mercy of the banks.
More than a decade after the implosion of the banks and disastrous economic collapse, and an endless litany of scandals and avoidable tragedies in the health service, policing and other areas of Irish life, successive governments have shown a dispiriting reluctance to establish systems of governance and accountability that meet the test of “invasive scrutiny and effective sanctions”. Without such mature systems, the “permanent and robust change in culture” that is called for, time and again, in every single case, will never happen.
A rap on the knuckles over coffee and chocolate biscuits down in Merrion Street won’t do it for the banking sector.
Until directors, executives and officials are named and penalised personally, they will smile and promise to mend their ways but then lie low and rely on political inertia and timidity, feeble oversight, puny sanctions that will ‘take no skin off their nose’ and the passage of time, before there is yet another scandal.