Mervyn King recently suggested the banking sector might not be all it could be in areas such as remuneration, risk management and customer service – not to mention a curiously less than capitalist expectation it will be bailed out by the taxpayer when things go wrong – and the banking sector has taken this amiss. Indeed, to judge by the strength of some reactions, the Bank of England governor’s words have come as something of a surprise.
Now I would never dream of suggesting those who work in banking or indeed any other part of Her Majesty’s financial services industry are out of touch with reality but here is a little test. If you are a banker or other financial type, do you regard a bonus as (a) what you get for doing something good or (b) essentially an extension of your salary that you will be paid regardless of your performance?
The clue is in the word “bonus” being Latin for “good” and not “taken for granted” but I suspect the truth is that far too many in finance – and indeed their other halves – regard bonuses as a matter of right rather than something they must go the extra mile to earn. This is not healthy. This is not in touch with reality.
So here’s a question – how does such a culture of entitlement come about? Yes, I agree there will be many parts to the answer, not least human beings’ endless capacity to persuade them-selves that the most convenient course of action is also in no way wrong. Presum- ably that goes double if there are chalets and yachts and school fees – oh, the school fees – involved.
But today I am going to concentrate on the role played by regulators in creating this Millwall-like City mentality, complete with its own theme tune of “No one likes us, we don’t care”. For as long as I have covered the wonderful world of investment, which – coincidentally or otherwise – started not too long before Labour came to power in 1997, the pervading view among regulators has appeared to be that, when it comes to responsibility if things go wrong, there is only one party in an invest-ment, pension or other financial transaction.
No matter the circum-stances, the punters are blameless and the providers are at fault. Moral hazard, so the watchdogs would seem to believe, is a massive problem when it comes to bankers and taxpayer bailouts but when it is members of the public being expected to read a paragraph or two of small print? Not so much.
But then, last week, the most extraordinary thing happened as we saw what may very well be the first recorded example of a regulator entertaining the possibility not every single evil inherent in Her Majesty’s financial services industry could be laid at the door of the providers and maybe, just maybe, it would be nice if investors could take a soupcon of responsibility.
It came in the text of a speech by Adair Turner and while, yes, I thought I must have misread it too, I am now almost certain I have this right. For, at one point, the FSA chairman refers to a recent paper that suggests financial instability is driven not just by faulty incentives but by forms of myopia – that “people, corporations or states may accumulate debt liabilities, and investors accumulate debt assets, to an extent which makes the system highly vulnerable to a sudden shift in risk assessments”.
Indeed, while at times coming dangerously close to sounding as if he was doing an ad for Specsavers, his Lordship mentioned myopia – metaphorical as opposed to actual shortsightedness – on no fewer than five occasions and noted that the same research finds “it may be inherent to human nature that in the good times investors fail to take rational account of the tail of low probability adverse events”.
No, I’m not sure what that language is either but, if I interpret it correctly, it comes dangerously close to the FSA acknowledging there are two parties involved in any financial transaction. Whisper it quietly but could this be the first step towards everybody – and I do mean everybody – in retail financial services being treated like grown-ups once again?
Julian Marr is editorial director of Marketing-hub.co.uk and Thought leadershiplive.com