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Briefing: banks
and finance
12   Banks slow to change
14   Re-evaluation boosts
     banking brands
18   More reform, say ...
12 Briefing: banks and finance                                                                                            ...
Ethical Corporation • June 2010                                                                                           ...
14 Briefing: banks and finance                                                                                            ...
Ethical Corporation • June 2010                                                                                           ...
16 Briefing: banks and finance                                                                                     Ethical...
Ethical Corporation • June 2010                                                                                           ...
18 Briefing: banks and finance                                                                                            ...
Ethical Corporation • June 2010                                                                                           ...
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Briefing on Banks and Trust, June 2010

June 2010 Ethical Corporation intelligence briefing on how banks can and should use ethics, sustainability and corporate responsibility to rebuild trust in their brands and in finance generally

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Briefing on Banks and Trust, June 2010

  1. 1. Briefing: banks and finance 12 Banks slow to change 14 Re-evaluation boosts banking brands 18 More reform, say activists
  2. 2. 12 Briefing: banks and finance Ethical Corporation • June 2010 ISTOCKPHOTO/KONSTANTIN32 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
  3. 3. Ethical Corporation • June 2010 Briefing: banks and finance 13 ISTOCKPHOTO/PHILPELL 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
  4. 4. 14 Briefing: banks and finance Ethical Corporation • June 2010 ISTOCKPHOTO/BARTCO 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
  5. 5. Ethical Corporation • June 2010 Briefing: banks and finance 15 DREAMSTIME.COM/BASPHOTO 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,” Swoboda says. “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 management cycle”. 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 with society 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
  6. 6. 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
  7. 7. Ethical Corporation • June 2010 Briefing: banks and finance 17 HSBC 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 accounts grow. • 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 families. • 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
  8. 8. 18 Briefing: banks and finance Ethical Corporation • June 2010 ISTOCKPHOTO/ZIUTOGRAF 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
  9. 9. Ethical Corporation • June 2010 Briefing: banks and finance 19 DREAMSTIME.COM/MARKWATERS 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