Depressing message from the banks is still ‘show me the money’

CAN you feel the nudge? Throats clearing, elbows knocked against ours? Bankers are saying they’ve had enough of penance and are pushing for pay caps to be removed. Up goes their wail that irreplaceable talent will be lost if they aren’t allowed to award themselves enormous salary packages.

AIB’s chief executive Bernard Byrne has just handed in his notice, hot on the heels of his chief financial officer’s resignation. We weren’t told explicitly that remuneration is the reason, but only last week the bank’s chair Richard Pym signalled restrictions on pay as a barrier to retaining senior staff. Mr Byrne’s pay and pension contribution totalled €587,000 in 2016, recompense beyond most workers’ wildest dreams.

We need to back up here. The only reason AIB and other Irish banks exist is because the people were their backstop. Taxpayers bailed out reckless institutions to the tune of €64bn and suffered from years of austerity as a result. Families and businesses were devastated. Homes and livelihoods were lost. Emigration became a safety valve.

AIB was able to return to the stock market earlier this year and the Government sold a significant stake – it is now 71pc State-owned. Recently, the bank has tried to introduce a deferred share plan forseniorstaffbutwasvoteddownbythe coalition.

This emphasis on eliminating pay caps and paying shares or bonuses based on performance is typical of banking culture – a value system which led to the bust. The Central Bank’s director general of financial conduct, Derville Rowland, this week referenced “the extent to which culture within firms contributed to the crisis in the first place”. She said culture drives behaviour and affects outcomes for customers. As we know to our cost, banking culture had a devastating impact.

A Central Bank report to the Finance Minister earlier this year reveals in no uncertain terms that banking culture remains the same. While a difference in leadership both at executive and board level is visible, no shift in corporate mindset can be detected. In short, the bailout has changed nothing of consequence in the banks. Why not? As Ms Rowland observed during a Central Bank/Trinity College Dublin co-hosted conference on corporate governance last Thursday, maybe it’s less about bad apples and more to do with bad barrels – in other words, workplace characteristics.

Here’s a question we need to consider: are bankers both personally and institutionally too profit driven? Bankers aren’t inventing the wheel, discovering penicillin or devising an algebra formula to represent the correlation of energy to matter. They’re not producing a lasting work of art like Da Vinci’s ‘Mona Lisa’, or an imaginative novel such as Mary Shelley’s ‘Frankenstein’ that’s still read 200 years after it was published in 1818.

Leading a bank is not more responsible than being Taoiseach, head of the Health Service Executive or Garda Commissioner. Yet bankers feel entitled to considerably higher rates of pay.

The boom was a spectacularly stupid idea. Why on earth would our politicians agree to anything that might lead to another? Already, Ireland is the fastest growing eurozone country and, while there’s nothing wrong with a flourishing economy, nobody wants it to overheat.

Banks are motivated by profit maximisation, as are other businesses. But if a firm selling concrete blocks goes bust it doesn’t have an impact wholesale on the community, whereas when a bank goes to the wall people lose their savings. Poten- tial societal risk is tied into how banks operate – it’s why trust matters so much.

At the same conference held in TCD, political philosopher Onora O’Neill raised the issue of how banks could be trustworthy. Her answer was deceptively simple: “honesty and competence”. Reliability is what’s truly important, she said.

She is a winner of the Berggruen Prize, a $1m (€880,000) award for people whose thinking has improved self-understanding in a rapidly changing world. When she speaks, we should pay attention. She said culture change couldn’t happen by regulation but had to come from the institutions themselves. “The great art has been to try to convince them to do it,” she observed. Clearly, this isn’t happening despite banks receiving extraordinary privileges from society at large (bailouts spring to mind). Banks do not understand they have a public duty. Instead, they focus only on their responsibility to shareholders.

Consequently, the culture hasn’t altered. Culture, incidentally, is an organisation’s DNA and shapes staff behaviour. It is the hardest element to change.

In Ireland, low levels of trust in the banks are apparent, not just because the bailout continues to rankle, but because of the way banks persist in behaving. The tracker-mortgage scandal betrayed industry-wide, unrepentant overcharging and led to some borrowers losing their homes. Banks only began making amends after the Central Bank intervened.

What that signals is a lack of integrity and an over-reliance on the profit-driven motive. While making a profit is healthy, the pursuit of profit maximisation at all costs causes damage to society. Yet it remains a bank’s primary goal.

There are five retail banks operating in Ireland, three Irish owned – Bank of Ireland, AIB and Permanent TSB – and two foreign-owned, Ulster and KBC. All are stock market listed, which means they are benchmarked and the stock market expects to see regular, upward profit trajectories. That’s all it cares about.

The banks themselves need to raise the bar higher. Senior staff blah-blah about best practice and ethical standards but the top-down message is: show me the money. No wonder public confidence remains in a slump. Of 28 markets surveyed, Ireland least trusts the financial services sector, according to the 2018 Edelman Trust Barometer. But the banks see little value in a reputation for integrity. Does the Central Bank have any bestin-class examples for Irish banks to learn from? Is there an institution anywhere worldwide with the correct balance of moneymaking plus ethical behaviour?

Meanwhile, the Government’s 71pc shareholding offers an opportunity to exert control over AIB. We also own 75pc of Permanent TSB, making it susceptible to pressure, and 14pc of Bank of Ireland – less easy to sway. Currently, demand for loans is high – a time when risky lending decisions might be made, especially if staff are incentivised financially. Remember, that’s the culture. So the onus is on the Government to resist bank lobbyists and on bankers to take account of their public duty. Without evidence of culture shift in the banks, there is always a danger that the populace – like it or lump it – might be called upon once again. Another bailout, anyone?

Low levels of trust in the banks are apparent, not just because the bailout continues to rankle, but because of the way banks persist in behaving