The banking sector has managed to put itself in the worst position possible in advance of any further financial crisis. By pushing on with 'business as usual' it has done little to assuage the anger still being expressed by people at its irresponsible behaviour and, now, at news of billions more being paid in bonuses (for performance that depends on the taxpayer backing the system). That means that banks cannot afford to make any further mistakes; the backlash would probably be disproportionate because people will feel that banks just do not 'get it'.
Bank behaviour is perplexing and it certainly seems to be frustrating some ministers in government. Financial Services Secretary Lord Myners gave an interesting speech last week to a City seminar of the Council of Christians and Jews. Noting the need for leadership on values in politics, he argued that 'Just as we need such values leading to action in our politics, we need them in our banks and economic life too. Banks must acknowledge that the values and ethics which drive their businesses are built on the values and ethics of wider society.'
Lord Myners listed examples of what this should mean in practice, including 'challenging...egregious remuneration practices.' Referring to excessive pay he expressed himself '...disappointed at the extent to which we are meeting opposition to change from those who have been rewarded so generously in the past.'
Myners highlighted three principles outlined by the Archbishop of Canterbury to guide thinking in the economic and environmental crises. They were: need for truth and honesty; recognise our stewardship of the earth and our responsibility to future generations; and understand our interconnectedness in that all of us are in these problems together. Myners called on people of faith in the City to 'Let your core values pervade your every action. As faith communities you have so much to offer to the debate.'
We can see that the debate about values in banking is developing. It is not enough to talk about values or urge their adoption. People need to take the lead and demonstrate how such values work out in practice, especially when there is a cost involved. And it is clear we cannot rely on people and institutions to reform themselves. At the least, we need to establish incentives in the financial sector to encourage the virtuous behaviour we seek. Structural reform (eg separating riskier banking from retail banking) is required too. All this is consistent with arguing that when they work properly, banks are a good thing for our economy. That's why we need to save them - even from themselves.
Government can also take a lead. Shareholders should behave responsibly and make their voices heard on executive pay. Taxpayers have large stakes in some banks via the government's shareholdings - those managing such stakes on our behalf must be required to take a lead. If this seems impossible to enforce - well who is apparently exercising unaccountable power in our country?