Tom Hayes paid a heavy price for his manipulation of Libor (London Inter-Bank Offered Rate, a benchmark rate used to set how much banks charge for finance). Sentenced to 14 years in prison, the former Citigroup and UBS trader was became the first person to be convicted by a British jury of rigging Libor rates. Since Mr. Hayes was charged with the crime, banks have collectively been fined billions for their part in what has become an industry-wide rate rigging scandal.
But rate rigging is just one in a list of practices at banking institutions that have come to light since the global financial meltdown of 2008 and the ensuing great recession.
Across the globe, banks failed massively. Some went to the wall but many were saved through painful and expensive public bailouts costing billions. Here in Ireland, the €64Billion price tag resulted in much needed social programmes being eliminated along with dramatic cuts in schooling, healthcare, policing and capital investment.
Additionally, the Irish state itself was undermined to such a degree by bank losses, it required a costly bailout by the IMF / ECB / EU which citizens will be paying for years to come.
But instead of acknowledging the debt owed by banks to the citizens of Ireland, it turns out they have moved in the opposite direction by kicking dirt in the faces of those they should be grateful to.
Over the course of the last 12 months, a series of disturbing reports have come to light that underscore how little appears to have changed in the critical thinking at banks and within their banking cultures.
Permanent TSB (The ‘we did nothing wrong’ bank).
Top of the list for bad practice is Permanent TSB (PTSB). It failed spectacularly to inform a cohort of its customers of their right to revert to valuable and low cost tracker mortgages once their fixed term interest rates expired. In doing so, the bank’s actions resulted in some customers losing their homes as a result of higher monthly repayments (which they should not been liable for in the first place). But it was the sheer determination of the bank to deny its customers what was rightfully their (lower borrowing costs) through the courts which underlines bank thinking. Despite being told that its actions were wrong by the Financial Services Ombudsman (FSO), PTSB persisted to the highest court in the land only ending its actions once the court ruled against it.
AIB (The ‘we charge you twice’ bank)
In August, Allied Irish Bank announced that up to 111,000 customers are to receive letter informing them that they may have been wrongly paying for fraud protection insurance even though they were already covered.
Bank of Ireland (The ‘we are right…or are we?’ bank).
Earlier this summer, Bank of Ireland decided it would be a good idea to solicit existing mortgage customers to switch to a fixed rate loan. The only problem was that in doing so, it was soliciting a cohort of mortgage customers whose repayments couldn’t be reduced as they were already the beneficiaries of rock-bottom tracker deals. But Bank of Ireland persisted anyway…even flaunting Central Bank disclosure rules in the process and insisting it did nothing wrong when it got caught in the act and the matter became public. Eventually, through the actions of Charlie Weston of the Irish Independent, Bank of Ireland marketing and management were forced into an embarrassing climb-down and public apology.
Profit yes…but not at any cost!
Reading between the lines, it is easy to detect a culture of confusion within banking. In Bank of Ireland, Permanent TSB and to a lesser extent, AIB, it seems that bankers are struggling to adapt to the new order. Perhaps in the past, they may have been powerful enough to push their way to a favourable resolution but today, that is no longer the case and bank culture appears to be confused as to how they can reconcile the gaps in what they want to do and what they must do.
Brand value matters
While value for money is still the major motivation of consumers, ethical business practice is also increasingly important. Here in Ireland, trust of banking brands is rock bottom while those of more ethical brands, including the Credit Union movement are tops. Increasingly, younger generations demand greater social responsibility from brands as they evaluate whether or not they want to become customers of those brands. And it is not just the brand value of financial services. Only this week, German carmaker Volkswagen has been rocked by the discovery that it fraudulently manipulated emissions results. Globally, brands that deliberately act dishonestly and ignore consumer this trend will pay a steep price.