Transcript of "Briefing on Banks and Trust, June 2010"
12 Banks slow to change
14 Re-evaluation boosts
18 More reform, say activists
12 Briefing: banks and finance Ethical Corporation • June 2010
Regulation and reform three Republicans in a 60-40 vote to end
debate on the bill.
Resistance to rules Michelle Chan, California-based director
of Friends of the Earth’s Green Investments
programme, says that members of the US
Congress, Republican and Democrat, want
By Oliver Wagg to look like crusaders for reform.
Resistance to bank regulation within the sector was strong in the lead-up to the “And of course the electorate is very keen
successful US Senate banking reform vote in May, despite public furore over Wall to rein in the excesses on Wall Street,” she
Street excesses says. But she suggests there are huge ques-
tions as to whether and how the ultimate
he recent US Senate grilling of Goldman Regulators have very different ideas. US financial reform package which emerges
T Sachs executives neatly reveals a root
cause of the US financial crisis. After senior
senators responded to public calls for
accountability in the financial sector by
out of the Senate will have enough clout to
essentially prevent a repeat of another
executives at the Wall Street icon were approving in May a far-reaching financial financial meltdown.
compared to bookies, Republican senator regulatory bill. Announcing the break-
John Ensign said: “In Las Vegas most people through – described as the biggest overhaul Splitting up is hard to do
know that the odds are stacked against of the banking sector since the 1930s – US The passage of the bill through the Senate
them. On Wall Street they manipulate the president Barack Obama lambasted Wall triggered a conference between delegates
odds while you’re playing the game.” Street for resisting reform. from the Senate and the House to reconcile
This alleged market manipulation is at “The recession we’re emerging from was their differences on the legislation to form
the centre of a Securities and Exchange primarily caused by a lack of responsibility one compromise bill. That bill would need
Commission lawsuit that alleges Goldman to be approved by both chambers by simple
defrauded clients by marketing a subprime majority votes before going to the president
mortgage product it had bet against. In its “On Wall Street they to sign into law.
defence the bank called the lawsuit manipulate the odds while Both the final versions of the bills require
“completely unfounded”, adding: “We did most derivatives to be traded through third
not structure a portfolio that was designed
you’re playing the game” parties, with the intent of increasing trans-
to lose money.” John Ensign, US Senate parency. But the Senate bill clamps down on
The hearings highlight the heated debate banks finding exemption from some of the
over the role of banks and whether and accountability from Wall Street to new rules.
speculative, highly risky activities should Washington,” Obama said. “That’s why I The reform measures aim to rein in big
be combined under the same roof as the made passage of Wall Street reform one of firms’ use of high-risk practices blamed for
stewardship of the public’s savings and my top priorities, so that a crisis like this the global financial crisis and put an end to
loans. Should banks be charged with does not happen again.” taxpayer-funded bailouts of banks previously
safeguarding their clients’ interests or Throughout what had been a very deemed “too big to fail”. They also aim to
make money for shareholders and execu- bumpy passage through Senate, which curb the sector’s largely unregulated deriva-
tives, some of whom are taking home followed the December passing of the bill tives business and include several measures
billions in bonuses? As Goldman Sachs chief by the House of Representatives, Democrats aimed at increasing the transparency and
executive Lloyd Blankfein bluntly put it in a fended off most major changes sought by accountability at the US Federal Reserve.
January testimony to the US Senate: “We Republicans and some members of their Friend’s of the Earth’s Chan attributes
are not a fiduciary.” own party. They were eventually joined by the banks’ lack of enthusiasm for reform
Ethical Corporation • June 2010 Briefing: banks and finance 13
The Volcker Rule
US president Barack Obama proposed in January that
“banks will no longer be allowed to own, invest,
or sponsor hedge funds, private equity funds, or
proprietary trading operations for their own profit,
unrelated to serving their customers”.
Named the Volcker Rule, after former Federal
Reserve chairman Paul Volcker, the proposal means
two major reforms to banks:
• Derivative products should be sold and cleared
through conventional exchanges, which are
transparent and can be properly supervised.
• A new resolution regime for banks, to replace
“too big to fail”.
Volcker is not advocating a return to Glass-Steagall
– a bill that separated investment and commercial
banking activities – or a stipulation that retail banks
should be prohibited from engaging in investment
Too much playing the market
banking. And the impact of the new US legislation
remains to be seen.
Meanwhile, politicians and campaigners coalition of NGOs including Platform,
alike have taken aim at the UK government’s Friends of the Earth and War on Want. This
to the profit-making potential of the lackadaisical approach to environmental, involves such action as behaving as an
sector’s over-the-counter (OTC) derivative social and governance (ESG) stewardship at active owner and incorporating environ-
operations. the newly acquired financial institutions. mental, social and governance issues into
“OTC derivatives remain a very large A UK select committee hearing into the ownership policies.
profit centre at many banks, even during banks’ use of taxpayer money in March saw
the downturn,” Chan says. New rules – MPs quiz officials from the Treasury and No end in sight
including the so-called Volcker Rule (see UK Financial Investments (UKFI) – the Investment specialists warn that by tackling
box) – may be “very scary to the banks government-owned corporation set up to the symptoms, regulators are failing to
because [the changes represent] a challenge manage these stakes. The sometimes stormy tackle the systemic causes of the global
to their business model.” The derivatives bill session revealed the government had financial crisis, raising the chance of further
that came out of the Senate may require placed no environmental or sustainability hits on the world’s markets and economies.
banks such as Citigroup, and Bank of conditions on the operations of the banks, Towers Watson’s global head of invest-
America, now that it’s part of Merrill Lynch, other than limits on executive pay and ment content Roger Urwin says risk-taking
to spin off their derivatives trading. lending. in the banking sector traditionally has been
UKFI officials struggled to justify direct exceptionally high. He argues that the
Bailouts, but little duty of care intervention in a government-owned banking industry is obviously chastened by
Keen to prevent systemic financial market bank’s business other than if it took any the financial crisis, is rebuilding capital to a
meltdown, governments acted swiftly to certain degree and reducing certain types of
buy stakes in failing banks during the Regulators are failing to risk. In other words, “it is in a better place
fallout of 2008. But recent data and govern- right now”. But the degree to which banks
ment hearings indicate the resulting state
tackle the causes of the will accept that regulatory reform is on
ownership failed to spur business recovery financial crisis balance desirable is, he says, small. “There’s
or foster improved environmental and no zeal.”
social stewardship. actions to harm its value. Urwin, who participates in the Network
A recent US government report revealed Asked if there was anything that a bank for Sustainable Financial Markets, says risk
the biggest Wall Street banks actually might do in terms of environmental sustain- and uncertainty are endemic in today’s
slashed their small business loan portfolios ability that might actually prompt UKFI to financial system. “We live in a more tightly
by 9% between 2008 and 2009, more than take some action, its chief executive, Robin coupled, interconnected financial world.”
double the rate at which they cut their Bundenberg, said: “It comes down to the And being tightly coupled means the
overall lending. impact on value and that is quite a broad markets are predisposed to accelerating
“Big banks pulled back on everyone, issue because where a company’s reputa- forms of crisis or financial accident.
but they pulled back hardest on small tion is brought into question, that often “Narrowly defined, the global financial
businesses,” says Elizabeth Warren, chair- does have a very direct impact on value.” crisis was over in the summer of 2009.
woman of the Troubled Asset Relief Campaigners say the government is Broadly speaking the global financial crisis
Program oversight committee, charged with missing a big opportunity. UKFI, at the continues, because all we have done is sort
managing the US government’s financial minimum, should follow standard good out some of the symptoms and not some of
stabilisation package effort. practice for institutional investors, says a the systemic causes,” Urwin adds. I
14 Briefing: banks and finance Ethical Corporation • June 2010
Banks and bankers bank’s ignominious fall from grace is not
borne out by sales data: last year RBS
The search for brand revival customers opened one million new savings
accounts, 1.1m more current accounts and
80,000 mortgage accounts.
“This indicates the underlying strength
that exists in the core businesses at RBS, and
By Oliver Wagg demonstrates that our employees’ commit-
Some financial institutions have taken the opportunity of the banking crisis to ment to customer service is reaping rewards,”
re-evaluate policies and business models. But is there really a change in culture? RBS chairman Philip Hampton said in the
bank’s 2009 corporate responsibility report.
rust is everything in banking. The global In the UK, the credit crunch was quickly “I have always said that if we continue to
T financial crisis of the past three years has
jeopardised that most valuable of commodi-
followed by a rise in customer complaints.
Now high street banks face possible fines
deliver for our customers on a day-by day
basis RBS will restore its reputation sooner
ties. The hard-won reputation of the after UK’s Financial Services Authority said than some commentators believe.”
financial sector dived to all-time lows in the in April that it was formally investigating Cave admits banks have been under
wake of the credit crunch. And now – even the sector for mishandling customer pressure. “But when you step back, if our
with an economic recovery under way complaints. products are delivered responsibly and effi-
across most western economies – it may ciently, they are deemed to be socially useful.”
remain irrevocably damaged. Serious complaints Across Europe, banks once hailed for
Many banks have resolutely set them- The FSA hasn’t named names, but says five their corporate responsibility have suffered
selves on a course for recovery by developing banks have weaknesses processing griev- huge setbacks. For instance, public opinion
and strengthening the corporate social ances after reviewing lenders responsible surveys conducted last year indicated that
responsibility and sustainability initiatives for for 70% of complaints it received. Danish customers were among the least
which they were once so well known. Some Peter Vicary-Smith, chief executive of satisfied in Europe.
have developed brand new programmes, consumer advocacy group Which?, says the Danske Bank, the largest bank in
while opening their vaults to customers and findings provide “another damning indict- Denmark, which has won accolades for its
shareholders in a new spirit of transparency. ment of the banking industry, many of corporate responsibility programmes, was
But few have radically changed the way whose members consistently put sales deeply affected by a general lack of trust,
they do business, which suggests that before customer service”. according to its 2009 corporate responsi-
future systemic financial breakdowns could RBS, for instance, was responsible for bility report.
be inevitable. 2,557 new complaints received by the Finan- Marion Swoboda, senior equity analyst
Financially, banks are certainly on the cial Ombudsman Service in the second half at investment boutique Sustainable Asset
road to recovery in the UK, one of the of 2009, while the service received 9,952 new Management, says that globally the banking
economies hit hardest by the fallout of the complaints about Lloyds in the same period. sector has weathered the storm relatively
banking crisis. Given the scale of the credit crisis and well. She singles out pockets of best practice
Royal Bank of Scotland, bailed out by the the impact on people’s back pockets, this is in Australia (particularly ANZ, Westpac and
UK taxpayer, reported a first-quarter loss in hardly surprising, senior banking execu- NAB), Spain (Santander and Banco Bilbao)
May, but it was the only major UK financial tives say. and France (BNP Paribas and Credit
institution to do so. HSBC joined Barclays Andrew Cave, head of corporate sustain- Agricole).
and Lloyds Banking Group in posting ability at RBS, admits the group’s brand is One particular standout in the March
healthy profits. “in a difficult place right now”. But the 2010 DJSI World Index review was Italy’s
Ethical Corporation • June 2010 Briefing: banks and finance 15
Banca Monte dei Paschi di Siena (BMPS),
which progressed a lot. Like the Australian
banks, BMPS “really understands the impor-
tance of rethinking business strategy,”
“That might not get you points with the
traditional analysts – having a more down-
to-earth, steady growth strategy as opposed
to perhaps a focus on structured finance –
but it is certainly the way forward.”
Francesco Mereu, corporate responsi-
bility manager at BMPS, says the bank’s
sustainability efforts are in reaction to a
marked decline in trust and reputation of
the banking sector in Italy.
“Regaining that trust is certainly the
focus of our business plan for the next year,”
he says. Mereu is confident that the bank’s
CEO is keen is keen to prioritise sustain-
ability objectives. The bank’s new core
project, set up over the past year, is simply
named Sustainability – “the aim is to
completely embed environmental, social
and governance [ESG] aspects into our £4.15 owned by UK taxpayer
Mereu says sustainability will now be sibility issues and uncommon completeness services companies in the world,” the bank
central to the overall business strategy, in reporting”. The bank provides, Lundquist says in a section headed Rebuilding Trust.
adding that the bank will use key metrics says, a high level of detail, with a great deal In the wake of the global financial crisis
throughout the business to incentivise of relevant information from its corporate and the ensuing credit crunch, banks now
change. responsibility report available in different need to forge a much stronger contract with
BMPS was judged the best financial insti- formats. society.
tution in the CSR Online Awards 2009, the Anne Søgaard Melchiorsen, head of
annual ranking of the best online corporate Opening up? corporate responsibility at Danske Bank,
responsibility communications conducted But have UK state-owned banks been says that corporate responsibility and
by financial communication consultancy forced into becoming more transparent and sustainability must have a much broader
Lundquist. accountable since the government became a focus, and that they have to move even
According to Lundquist, BMPS shows significant shareholder? closer to the bank’s core business.
“remarkable sensitivity to corporate respon- Royal Bank of Scotland, 83% owned by “Beforehand you could have some ‘nice
the state, has made some significant strides,
according to Cave. “Clearly the new
Retail banks face rising management team had to mark a change in Banks need to forge
complaints culture. It fell to them to re-engage our a stronger contract
stakeholders and win trust by being more
The UK banking groups responsible for over 70% open and disclosing more information,” he
of customer complaints had a number of features says.
in common. He adds: “Our stakeholders have to be to do’ projects – perhaps some microcredit
• Poorly designed staff incentive schemes. able to track us, not just trust us.” And so, projects, some [investment] screenings etc –
• Inadequate complaint handling by staff RBS has moved to quarterly financial but now responsibility is about the core
in branches and call centres, leading to reporting, now discloses more financial business,” she says. And this means respon-
inadequate investigation into the problems. information to give investors a much better sible lending, and how the bank acts as an
feel, and includes detailed information of adviser, she suggests.
• Poor decision-making and unsatisfactory
previous write-downs. Citigroup, one of the biggest banking
correspondence with customers.
Lloyds Banking Group, 43% owned by groups in the world, says it has plotted a
• Complaint handling procedures that led to staff the UK government, was unable to answer path to recovery through the provision of
issuing multiple, repetitive responses to customers. Ethical Corporation’s questions. But in its responsible finance in response to what
• Failure to learn from previous complaints and 2008 corporate responsibility report, the customers want.
to make changes to prevent similar complaints bank said it had communicated a “shared set Pamela Flaherty, president and chief
arising in the future. of values” since the government acquired a executive of the Citi Foundation and
Source: FSA stake. “We have the opportunity to create director of Citigroup’s corporate sustain-
one of the strongest and safest financial ability, says group chief executive Vikram
16 Briefing: banks and finance Ethical Corporation • June 2010
operations in Europe and the Middle East,
was paid the stock bonus in addition to his
basic annual salary of £800,000.
HSBC, Barclays and Lloyds Banking
Group did not respond to Ethical Corpora-
tion’s repeated interview requests.
The British Bankers’ Association takes a
relaxed view of executive pay. “Banking is
global in nature and highly competitive,”
says the BBA’s Brian Capon. “The banking
industry in the UK is a world leader and
earns a great deal of income for the UK
economy.” He says that to retain this
position the industry needs to compete
internationally and that means employing
the best people, and to “provide a competi-
tive remuneration package.”
Bevis Watts, head of UK business banking
at sustainable bank Tridos, says banking
culture is too wrapped up in excessive pay
that is based on short-term targets. “We have
had a financial system that has been entirely
focused on short-term profit performance.”
Watts suggests that at most, people look
at business plan objectives for a bank over
three to five years. “But in actuality every-
Citi flying the responsible flag? body is focused on performance in the
current financial year,” he says.
Pandit talks a lot about finance that is for UK corporate governance adviser PIRC,
“responsible and responsive to consumers”. recently likened the market for high salaries Greed culture
“In the US, our CEO is constantly rein- and bonuses to a “remuneration arms race”. The blame rests with payment structures,
forcing the importance of a return to Lloyds’ remuneration report may, Watts argues. “The way that bankers are
profitability through providing responsible depending on the performance of Lloyds’ remunerated has to change because it is an
finance. He has talked about the importance shares, see chief executive Eric Daniels net inherent part of this culture that supports this
of Citi demonstrating it is contributing to up to £6.2m in salary and bonuses over great nonsense of greed and chasing after an
the economic recovery of the country,” three years. Lloyds’ remuneration report ever more unsustainable system,” he says.
Flaherty says. was approved by 90% of shareholders at its Martin Lawrence is head of research at
For Citigroup, responsibility means recent AGM. governance advisory firm RiskMetrics in
direct action in the markets in which it Royal Bank of Scotland saw its remunera- Melbourne, Australia. He is hopeful the
operates. For example, since the start of the tion package approved by 99% of its investors global financial crisis alerted enlightened
financial crisis in 2007 Citigroup has helped – a vote higher than in 2008. RBS chairman shareholders to excessive pay packages.
824,000 consumers avoid foreclosure, “The big issue is huge cash bonuses and
Flaherty says. guarantee for failure, but that’s not confined
In May Citigroup launched a $200m Executive pay continues to a bank, that’s in all industries,” Lawrence
Communities at Work Fund to fuel small to be one of the most says. But he points out that in reality very
business lending in low-wealth and low- few remuneration packages get turned over
income US communities. The fund will
contentious issues at AGMs.
provide financing to both non-profit and Lawrence says there is hope that
for-profit community development loan Philip Hampton told shareholders at the continual naming and shaming will rein in
funds that will then lend to local businesses AGM that the bank would listen to investor some excess. “Board directors are timid crea-
in low-income communities. concerns over its new bonus scheme for tures on the whole. The threat of
The bank will provide $199m of capital senior executives, which could net chief exec- shareholder opposition can be enough to
through a combination of equity and loans, utive Stephen Hester a maximum of £4.8m. persuade them. At least that shows they are
with the Calvert Foundation and Opportu- Meanwhile the head of HSBC’s invest- being responsive.”
nity Finance Network contributing the ment banking business, Stuart Gulliver, While pressure builds to limit executive
balance. received in March the largest bonus paid by pay, some institutions are attempting to
Executive pay continues to be one of the the bank: worth a whopping £9m. Gulliver, leapfrog public outrage with innovative
most contentious issues following a crisis who in addition to running HSBC’s global compensation packages.
that many attributed to greed. banking and markets business and its asset Goldman Sachs said in late 2009 that it
Tom Powdrill, head of communications management arm is also head of the bank’s would pay top executives in restricted stock, a
Ethical Corporation • June 2010 Briefing: banks and finance 17
Ramping up responsibility
in response to crisis
Some leading banks have boosted responsible
practice as a response to the financial crisis.
• Royal Bank of Scotland’s commitment to
customer service has seen savings/mortgage
• Danske Bank has developed a financial literacy
programme, and wants CR at the core of operations.
• Citigroup now helps customers avoid foreclosure
and kick-starts microfinance for low income
• BMPS has been lauded for its online corporate
responsibility communications strategy.
scheme that will defer compensation
expenses. The awards will consist of shares-at-
risk that start vesting in 2010 and can’t be sold
for five years. Goldman, which has repaid
with interest the $10bn it received from the US
Treasury, was derided for allocating a near-
record $16.7bn to pay employees in the first
nine months of 2009 after benefiting from Still big bonuses to be made at HSBC
government support. Goldman Sachs did not
respond to interview requests. Piechocki says. Customers become “We give an assurance to customers that
The crux of the problem, critics say, is members of the local cooperative Rabobank we will only be supporting projects that can
that senior executives at mainstream banks branch and have a say in how the bank is demonstrate they have a positive social and
are not on the whole incentivised to priori- run through elected member councils, environmental impact,” he says.
tise sustainable business practices. which feed into the broader governance He argues that sustainable banking is
Dutch financial services group ING is network. impossible without transparency, “both in
perhaps an exception, after announcing in “We believe a company can only survive how you use the money – we have a Google-
April the integration of sustainability into [in] the future if sustainability becomes a core powered website that you can search and see
the personal accountability and perform- part of the business – [if] there’s a solid all the organisations supported by the bank –
ance objectives of its senior management. business case. Now you have to organise and in the products you offer customers”.
“To ensure that corporate responsibility your operations in a sustainable way. Other- With governance such a high priority,
is an integral part of our corporate strategy, wise you lose to competition,” Piechocki says. Triodos offers shares that are held in trust,
our social, ethical and environmental objec- Triodos, the Financial Times Sustainable with shareholders receiving depository
tives will be quantified and used as a Bank of the Year in 2009, has also benefited receipts. Everybody has the right to elect
measure of performance in the remunera- a board of trustees to represent that trust.
tion policy of the executive board’s variable No organisation can own more than 10%
pay programme,” the bank says. Sustainable banking of the bank’s share capital, ensuring its
is impossible without independence.
An ethical umbrella With all this in place, Triodos achieved
Rabobank’s head of corporate social respon-
transparency 30% growth across Europe last year as the
sibility, Richard Piechocki, says the Dutch mainstream banking sector contracted.
bank – one of the 20 biggest banks in the from its lending practices and alternative “The fact we are not exposed to the
world – was virtually insulated from the ownership. The bank says it finances compa- wholesale money markets has been the key
credit crunch. nies, institutions and projects that “add to having that stability and ability to be able
The bank, which has a cooperative cultural value and benefit to people and the to lend,” Watts says. He contrasts this with
ownership structure, was founded over 110 environment”, that this is done with the what many other banks have done: vastly
years ago as a rural credit cooperative by support of depositors and investors “who leverage their balance sheets, borrowing
Dutch farmers who sought to provide their want to encourage corporate social responsi- and lending funds beyond what they can
rural communities with access to fair and bility and a sustainable society”. comfortably secure.
sources of credit. Bevis Watts says sustainable banking is “They have become too big to have any
“Customers believed we were an island based on three main tenets at the bank: how responsibility for the risks that they run. We
in a rough sea since we have very strong the money is used; transparency; and have ended up with a system that is too big
policies and avoid high-risk products,” governance. to fail,” he concludes. I
18 Briefing: banks and finance Ethical Corporation • June 2010
Campaigning pressure bought in 2007 by a consortium of RBS,
Fortis and Santander.
Short-changed on bank reform The Dutch parliament released a report
in May that encapsulates the lack of
progress. The Report of the Parliamentary
Committee Inquiry Financial System says
the committee calls for “serious and critical
By Oliver Wagg reflection” by all parties involved in the
Banking sector activists are concerned that the reforms being promised financial system.
do not go far enough The report states that some of the impor-
tant factors that served as the causes of the
he global financial crisis that triggered tax evasion and taxing the banks to fund crisis in the financial system are still present,
T the failure of some of the world’s biggest
and best-known banks has led to fervent
development projects, “the banks have
fought very, very hard against what we are
both in the structure of the system itself and
in the culture and conduct of those within
calls for wholesale reform from investors calling for”. it. “These factors could once again cause
and civil society alike. Johan Frinjs, coordinator of Banktrack – problems in the financial system in the near
But change has been sluggish and an international network of campaign future,” it concludes.
patchy at best. It has been held up by regu- groups – says the bank sector is actually And Banktrack’s Frinjs says: “ABN Amro
latory and political hurdles and the moving in the opposite direction of reform. is planning to be the very same bank that it
reluctance by the banks themselves – most “You would expect after the turmoil that the used to be, rather than something that has
of them beneficiaries of large public bailout banks would be looking at some very strong learnt from the monumental mistakes it
packages – to search for and deploy alterna- policies, but mainly they aren’t and are made. The culture hasn’t changed at all.”
tive business models. quite defensive.” Banktrack recently published a major
Many social justice and environmental Tanner agrees the sector is not serious investigation into the business conduct of 49
campaigners see the financial sector ’s about changing its business practices. “All I global banks – Close the Gap – the third
meltdown as a huge opportunity for funda- have heard is PR spin on some very serious study of its kind designed to stimulate the
mental reform of the way banks conduct issues, such as investing in the arms trade.” development of world-class investment
their business. But most are worried that She says that UK banks have been effec- policies by the banking sector.
little has changed. tively lobbying to oppose structural change Despite the turmoil caused by the global
Ruth Tanner, campaigns and policy that would be good for the economy and financial crisis, the sector has developed
director at anti-poverty campaign group security, and “the rights of some of the more policies covering more sectors and
War on Want, says her organisation is world’s poorest people”. sustainability issues. However, the overall
extremely concerned that the public is not quality of these policies “still leaves a lot to
getting the fundamental change they are Leveraging public ownership be desired”, the author of the report Jora
demanding. “At the moment we are seeing Campaigners in the UK and the Nether- Wolterink says.
‘back to business as usual’ and back to bonus lands are keen to persuade their The key to all this lies in better trans-
culture and casino capitalism, which got us governments to use their clout to reform parency. One environment, social and
into this mess in the first place,” she says. state-owned banks. These include UK banks governance researcher who preferred to
She says that the City has been consid- Royal Bank of Scotland (83% owned by the remain anonymous pointed out that no
ered untouchable [by the UK government]. government) and Lloyds-TSB (43%), and banks report on their actual business.
While some “tangible ideas” have been put ABN Amro, whose remnants were nation- Miners and oil companies report on the
forward over the last year, such as tackling alised by the Dutch government after it was impacts of their business, he says, but banks
Ethical Corporation • June 2010 Briefing: banks and finance 19
St Vince to the rescue?
Hope for tougher bank regulation in the UK
emerged in May with the appointment of Lib Dem
Treasury spokesman “Saint” Vince Cable – hailed
by right and left as a prophet who predicted the
banking crisis – to the post of business secretary in
the new coalition government.
Lib Dem policies have tackled the area of finance
sector regulation, supporting a tax on financial
transaction, a new green investment bank and inter-
vention to curb speculation through breaking up
the banks. At its conference in 2009 the party laid
out policies to end taxpayer support for Royal Bank
of Scotland’s investments in tar sands extraction.
“Introducing these policies from the outset
would signal a real commitment to cleaning up
the mess that the financial crisis has left Britain
and the world in,” says Deborah Doane, director
of the World Development Movement.
Kevin Smith, co-director of Platform says: “Vince
Cable needs to ensure that the reform of the banking
sector involves addressing environmental as well as
financial sustainability.” He argues that the new
government’s plans for a green investment bank will
be dramatically undermined if it continues to allow RBS
“to use public money to support and expand carbon
intensive industries and operations around the world”.
But just days after the new coalition government Leaders try to get tough
“generally report on admin, not their core alleviating poverty in developing countries.
business. A lot of banks tend to win awards Cobham argues that financial secrecy not
for their sustainability reports, but this is only reduces the tax base, it also distorts
nonsense.” economic and social processes. “Effectively
it tips the balance within a developing
A taxing problem country away from giving people incentives
A significant portion of the criticism levelled to invest and carry out genuine productive
at the banking sector focuses on the myste- economic activity and towards things that
rious ways some conduct their tax activities.
Consequently banks have a great deal to
High hopes for Vince Cable gain by lifting the shroud of secrecy,
Banks have a great deal to
campaigners say. gain from lifting the shroud
was formed, reports emerged that the new chan- The stakes are high. Taxing Banks, a of secrecy
cellor of the exchequer, George Osborne, will take submission to the IMF by Christian Aid, the
responsibility for reform of Britain’s banks and not Tax Justice Network, UK trade union
the Lib Dems’ Cable. movement the TUC and others estimates involve them taking their slice of the cake,”
The Treasury is to remain in charge of banking that recommended measures to tackle corpo- he says.
policy and the financial services sector, with Osborne rate tax avoidance by banks might raise With the G20, OECD and the IMF all
chairing a key cabinet committee that would existing yields by 50% to $180bn worldwide. starting to scrutinise these issues much
commission a top-level report into the feasibility of The potential revenue streams from more closely, there is an opportunity for the
splitting the “casino” investment banking arms of enhanced bank reporting on customer banking sector to be seen to be clean.
banks from their mainstream high street operations. activity are much greater still: a significant For most banks this isn’t a great part of
The parties agree that a banking levy will be intro- proportion of the current estimated $255bn their business – there are some banks,
duced and state that they will bring forward detailed lost to tax evasion as a result of bank opacity probably a minority, where tax avoidance is
proposals for robust action to tackle unacceptable might be recovered. a particularly large part of their business. But
bonuses in the financial services sector. “In developing Christian Aid’s chief policy adviser, Alex for most banks the reputational risk of being
these proposals, we will ensure they are effective in Cobham, says tackling the root cause of the seen or revealed to have been involved in
reducing risk,” the new government says. global financial crisis would help stamp out tax evasion is probably quite large compared
tax evasion, which has huge potential for with any financial benefit. I