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Damaged goods

How badly damaged is the brand that we call “the banks” and what is the chance of them recovering consumer trust in the short and medium terms? Reviews by Sir David Walker and Lord Turner have focused on key areas, including those of non-executive director and institutional investor duties and responsibilities and remuneration structures. In the case of Turner, a key issue was the financial security of the banks.

It is, of course, easy to be wise after the event but does the man in the street not have the right to ask: “Surely these issues have been addressed in the past?” Otherwise, why has the consumer (it is always the consumer) had to pay so much for financial regulation over the past 20 years or so? It does seem that the consumer is asked to pay twice – at least, once for inadequate regulation and, second, to pay for the consequences of the “credit crunch” .

The bank brand is damaged at many levels but the one that most impacts upon the consumer is the lack of availability of credit. Like it or not, credit is the oil that smoothes the wheels of the economy. But uncontrolled and inappropriate lending has the opposite effect of smoothing as we have seen it brings those same wheels to a grinding halt.

As authorised and regulated individuals, we also have the right to ask searching questions about the regulation of banking activities. Most IFAs feel that they have a heavy burden of regulation, perhaps disproportionate to their size and the potential for them to do harm.

I thought that was what the regulatory system was focused on – regulation based on risk – but it does not seem to have worked out that way in practice.

Perhaps there is something to be said for the effective nationalisation of the banking sector through government share acquisition. We might expect closer scrutiny of what goes on in these organisations.

I, though, will not be holding my breath. Too many parts of the regulatory process will be seeking to place the blame for regulatory failure elsewhere.

Sure, the intermediary sector is not without fault and impro-ving standards is a must. Most of those IFAs who have the capacity to do the joined-up thinking recognise the need for change and improvements. But, to be honest, what is asked of us by the regulator is insignificant compared with what the regulator must ask of the banking sector.

How quickly the situation changes, too. Just recently, we have seen two investment banks post massively increased profits and huge bonuses to their staff. How have they done this? The cynical among might believe that they have already started to create smoke and mirrors investment products or perhaps that is unfair. It may simply be that some banks out there were not instigators of the world wide problem. Regardless, they too will have had their brand damaged by the poor behaviour of others.

Nick Bamford is joint managing director of Informed Choice


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