Friday, October 09, 2009
Last Christmas, around the time when the storm hitting the financial industry was near its fiercest, a new pantomime villain entered stage left – the banker.
With the economic outlook worsening day by day, wicked stepmothers and ugly sisters were replaced by bankers as baddies in our seasonal favourites.
While on the face of it this seemed like harmless fun, it did point to a more serious underlying theme – the erosion of trust in banking specifically, and the financial sector more widely. No longer were estate agents and builders on the receiving end of barbed comments about their professions. The financial industry had become the butt of the joke.
The last year has seen the banking industry suffer the most damage to its reputation. From the Square Mile to the high street, the industry has become a lightning rod for the public’s disgust. To many, the sector represented everything that is bad about the financial industry – rewarding failure with excessive pay and serving customers badly.
But it’s not just the banking industry’s reputation that has taken a hit. The wider financial sector is suffering too. For example research commissioned by KPMG International in June found that the events of the previous 12 months had seriously damaged the credibility and reputation of the global investment sector. Also the use of short selling by the hedge fund industry was blamed for making an already bad situation worse.
And the collapse of financial powerhouses such as Lehman Brothers, the alleged defrauding of investors by Bernie Madoff and Allen Stanford together with the failure of regulators to prevent the crisis all played their part in undermining the reputation of the financial sector.
The question is, does the reputation of the financial industry matter? In the sense that a bad reputation is bad for its long term business prospects, yes it does.
The UK finance sector employs more than one million people, accounts for about 8 per cent of national output and contributes some 14 per cent of total tax revenues in this country.
On 22nd September, the City of London Corporation launched its latest independent global survey ranking the world’s financial centres. Once again, in the eyes of the world’s businesses, the City of London was the leading global financial centre. But the gap between London and New York, Hong Kong and Singapore narrowed significantly. This should serve as a warning that London’s position at the head of the table is under constant and renewed threat. A number of factors will determine whether London retains its position in the future – not least the City’s competitiveness in terms of things such as regulation and tax.
But its global reputation will also come into play. Lord Turner, Chairman of the FSA, recently said that the finance sector needs “to rebuild public understanding that banks and financial markets perform not only socially useful but vital functions.”
To achieve this aim, the industry will need to be open about its past mistakes, show that lessons have been learnt and communicate much more effectively with all stakeholders. Failure to do so risks the long term health of one of the UK’s greatest assets.
Jeff Watt
jeff.watt@greentarget.net