If the deteriorating faith in banks is to be checked, immediate, and effective, changes in the system are necessary.

What do I expect of my bank? Thirty years ago, my answer to that rhetorical question would have been simple: I expect financial expertise and complete trustworthiness in the provision of a service. My answer to the question today is far less reassuring. I have grave doubts about the bank’s financial expertise. I view the behaviour of the bank’s officials as dubious, to put it mildly — and I would be most reluctant to approach a bank for financial advice.

That may be an over-reaction, but of course it reflects an attitude induced by the latest banking scandal: the behaviour of the Co-operative Bank, and its (now departed) chairman, the Reverend Paul Flowers, a Methodist Minister.

The story of what has happened with the bank, leaving aside the personal scandals of Mr. Flowers, is scarcely credible. It is a story of bad judgments, notably over its merger in 2008 with the Britannia Building Society, and its failed attempt to take over 631 branches from Lloyds Banking Group. Apart from bad financial judgments, it is also a story of weak management. There is a complication because of the links between the bank and the Labour Party, which has benefited from favourable loans from the Bank, which are inevitably now under scrutiny. To put it bluntly and simply, the whole thing is a right mess.

At a certain level, it is easy to apportion blame. For example, it has emerged, as the story has unfolded, that Mr. Flowers had very limited financial knowledge. When one begins to consider that, it quite quickly becomes clear that there are serious failures in regulation to be taken into account. Why, for instance, was the appointment of Mr. Flowers allowed by the Financial Services Authority (replaced now by the Financial Conduct Authority), given his rudimentary financial knowledge? Why did the Co-op Bank not have on its management board people from outside the Co-op, with financial experience?

I wrote early in this article that my expectation of what service will be provided by a bank is inevitably coloured by the fact that there has been a galaxy of banking scandals and crises in recent years. Banks have collapsed, and have had to be rescued by government. Senior bank staff have had to leave their jobs in disgrace. Not surprisingly, all this has led to great public suspicion of banks. No longer are they seen as monuments of financial expertise, led by people with impeccable credentials, and unchallengeable skill.

Negative public attitudes have been exacerbated by the way in which many senior bankers have been demanding vast salaries, and unbelievably high bonuses. The question raised, obviously, is salaries for doing what.

There is another issue which affects public attitudes. One has to recognise, of course, that many of the services that banks provide are not services to “domestic” customers. The fact remains that many of the “domestic” services are becoming less easily accessible except online. Many local bank branches are being shut. The reasons are clear, and probably realistic. The changes, however, do not enhance the respect which ordinary people feel for banks.

It is clearly important to clean up, and effectively regulate, the banks, so as to ensure that another Co-op situation cannot occur. Part of that regulation must include insisting that the board of a bank must include people with full banking skills — and must include also outsiders with such skills. Part of the problem at the Co-op arose from the fact that the Co-operative movement is a partnership — a mutual. So, however, is the highly successful John Lewis trading group, and they took the decision seven years ago, when embarking on a major modernisation, to appoint independent non-executives to the board. It can be done, and in the Co-operative Bank, it clearly should be done.

In my view, something else is necessary for the whole of the banking system. It must be forced to recognise not only what a large part of the national economy it constitutes, but also the duty which that imposes on the system, and on individual banks and those who run them, to provide an honest, and efficient, and trusted service. The personal scepticism which I described at the beginning of this article is just that: personal. I do believe, however, that it reflects something far more important, namely a widespread lack of trust in the contribution which banks are making to the well-being of the country.

Bill Kirkman is an Emeritus Fellow of Wolfson College Cambridge, UK. Email him at: bill.kirkman@gmail.com

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