Amoral banking

Over the last couple of years, Andrew Tyrie has been acknowledged as the most powerful of the back benchers, not least because of his position as chair of the Parliamentary Commission on Banking Standards.

However, his recent call to "electrify" the ring fence proposed around banks' riskier activities was, in my opinion, more headline-grabbing than useful.

As with all politicians, I am wary of the temptation to gain notoriety and votes by saying what the public might want to hear and certainly, electrify a ring fence and a few bankers into the bargain will have a general appeal.

Taking up the impact of the financial crisis, many of us will have experienced a form of catharsis when seeing senior bankers humiliated under questioning by the Treasury Select Committee, and while that has its place, it is not going to solve any problems.

Mr Tyrie's ability to wield words like a whiplash is well known - he summed up the LIBOR and other scandals as down to "shocking and widespread malpractice" - but he and others are in danger of fuelling a banker pogrom at a time when we don't need bankers in the stocks being pilloried but need them to be fixing their institutions.
 
The thrust of Mr Tyrie's mission should therefore be to fix the banks while foregoing advances in the popularity stakes by banging on about banks' deep lapses in standards.
 
According to the back bencher, we need better regulation and a more competitive banking industry even at the cost of putting international co-ordination on a back burner so we can do "what is right for the UK".

Exactly what you might want to hear, but why has he chosen to skirt round the structural problems faced by our biggest banks and the extent to which changing the culture of banks is a difficult, slow process.

Banks became a-moral money making entities over a couple of decades, as easy credit and economic growth were applauded.

Few complained as they developed an alarmingly unequal risks and reward culture based on a financing model of 3% equity and 97% debt.

We are now demanding new values from our banks so they serve a good purpose in society but according to Andre Spicer of Cass Business School, movements from within and without the finance sector, with a longer-term focus than Mr Tyrie's, will need to play their part.

To "Change Banking for Good" we need to go beyond making senior bankers personally responsible and reinforcing the powers of regulators.

Even a new criminal offence of reckless misconduct in the management of a bank will have little impact if banks can't successfully restructure their financing models.

Speaking recently on Radio 4's "The Bishop and the Bankers", Mr Spicer argued that banks can't change without accompanying fundamental changes in society - implying that we all have to find another way of doing things.

That doesn't mean banks can be left to their own devices - for example, they have been busy lobbying on new capital demands, saying they will wreck the economy, and that's a viewpoint that needs challenging.

And according to James Featherby of ResPublica, none have so far been able to restructure their financing models successfully, with one of the think-tank's other leading voices, David Fagleman, summing up, "on the verge of the fifty anniversary of the banking crisis, and the Government still lacks a comprehensive plan of correcting the inherent fault of the financial system".

On this point I would draw Mr Tyrie's attention to recent news from Barclays which is proposing to raise £5.8 billion in a right issue to reduce it leverage exposure.

The Prudential Regulation Authority (PRA) has introduced a 3% leverage ratio target and as at 30th June 2013, Barclays’ PRA Leverage Ratio stood at 2.2%, representing a gap of £12.8 billion.

Currently UK banks face a collective £120 billion shortfall under the target and yet politicians appear content to evade the problem of banks' financing structures and focus instead on bankers' pay.

This may be because Members of Parliament are increasingly career politicans and know little about the commercial world - but as a true skeptic I also suggest that bold statements on bankers' remuneration deflect public concern about the very comfortable salaries collected by MPs themselves.

Then there is the revolving door syndrome between Westminster and the City and methinks some Board appointments in this tradition mean that some non-executive directors of our financial institutions are in charge of sorting pencils, while the main players round the table apply their ways and means of influencing government policy.

So, Mr Tyrie, no more headlines from you (or any other politicians wanting to inflate their own importance) until you own up to the difficulties of transforming institutions that have been about cold hard money for the last couple of decades, with financial structures to fit.

Certain UK banks do appear to be in the process of redefining their values from a-moral to moral (Barclays for example, is having a fair crack at it) and in the meantime, we need to remember that for the UK, it is invisible earnings from the finance sector that make up the balance of payments - not engineering or knitting.

I sometimes wonder if any back benchers are aware of this - when even the most vocal and powerful among their ranks seem so keen to vilify bankers.

Disappointing when you realize that the cultural shift demanded of the banks means we should all be having a rethink - like it or not.

Ring fence what you like and electrify what you will, but banks have to create cultures and finance structures that dispense with their a-moral elements and make it easy, and even pleasurable, for their people to behave well.

And that is where Mr Tyrie needs to direct his attention and grab a few headlines, or risk adding pot-kettle-black to his label of "most powerful back bencher".