The Great Debate UK
Why trust is the new currency for banks
- Robert Phillips is UK CEO of Edelman, a public relations firm. The opinions expressed are his own. -
Trust is an entry which does not appear on a bank’s balance sheet. As an important asset, perhaps it should.
As banks struggle to get back to their feet, however, another deficit would not be welcome. According to Edelman’s 10th annual Trust Barometer, published last week at the World Economic Forum in Davos, trust in the UK banking sector has fallen to an all time low, plummeting to just 21 percent, down from 41 percent in 2007.
The UK banks are by no means alone: trust in U.S. banks fell from 68 percent in 2007 to 29 percent in 2010 as the banking giants on Wall Street ran into a new wave of criticism from Main Street.
However, it is not all bad news for business: trust in business as an institution has risen globally to 54 percent, driven by significant jumps in a number of Western countries (up 20 points in Italy and 18 points in the U.S.) and higher scores in the BRIC countries (67 percent in India and 62 percent in China).
In the UK, trust in business (47 percent) remains low but stable over the past 10 years. With almost 70 percent of respondents expecting companies to return to “business as usual” once the economic crisis is over, what lessons can be learned by banks as they seek to restore trust?
In an age of bailouts and bonuses, banks must acknowledge that yesterday’s “business as usual” is no longer common currency. For the first time, “trust” (72 percent) and “transparent and honest business practices” (64 percent) are seen as the most important drivers of corporate reputation in the UK (and globally).
It’s all over: The banks have won
- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -
There is so much talk of a new regulatory framework for the financial sector, anyone would think it was an important issue.
Unfortunately, it is almost irrelevant, for the simple reason that, however sophisticated the new regime, experience shows it will be bypassed and/or captured by banks of one kind or another, possibly by novel types of institution invented specially for the purpose.
This is true even in the unlikely event that the whole world – with the possible exception of North Korea – embraces the new regulations and enforces them with vigour.
The only type of intervention which has a hope in hell of success is one based on size. As Mervyn King has said, when a bank is TBTF (Too Big To Fail), it is just too big.
What is needed is breakup along functional (and, where necessary, geographic) lines, separating the boring but essential utility business of deposit-taking and payment-transfer from the exciting risk-taking of investment banking. A once-and-for-all breakup would have to be followed by continual monitoring, to ensure that takeovers and mergers did not breach the size limit and take us back to the TBTF dilemma.
The aim should be straightforward. If banks were cut down to manageable size, the taxpayer’s liability could be limited to deposit insurance alone. Banks could be allowed to fail in the same way as firms in other industries and would no longer be able to hold Governments or central banks to ransom, as they have repeatedly done in the last twenty or thirty years.
The author seems to forget that we live in a global economy. If we intentionally break up our banks, then foreign banks will take over and funnel profits back to their home countries. Our own institutional investors have a fiduciary responsibility to seek the highest returns and would seek out those big foreign banks instead of small regional banks. Why? Because those foreign banks are too big to fail while ours may suddenly fail without warning, thus investments are safer in banks which are too big to fail.
from Ask...:
Money, money everywhere …except in your pocket?
There's lots of money sloshing around the financial system these days. The Federal Reserve has established a target range of 0-0.25 percent for its key rate, bringing it closer to unconventional action to lift the economy out of a year-long recession.
From Washington, the first package aimed at rescuing the credit crisis-hit banking sector amounted to $700 billion. Treasury can use only half of that amount and it has already pledged all but $15 billion of it. The Senate has refused to pass a $14 billion rescue package for Detroit's three major car companies last week, leaving it in the hands of the Bush administration to work out a deal.
So far, the names that are on the receiving end of all the cash -- AIG, JPMorgan, Citigroup, Merrill Lynch and if a deal can be made, General Motors, Ford and Chrysler -- are all very big companies.
The Fed's latest move could help funnel some cash to the ordinary folks at the helm of the economic ship. What do you think, will any of the money flooding the financial system reach smaller companies or other borrowers? If you're an individual looking for more cash, are you having trouble and do you think help is on the way?
The banks are just using the money to cover their losses and not help the economy by making loans. Consumers are too scared to get loans even if they made it available. Why? Employees are concerned about jobs, business owners are concerned about repayment if their business grows even more sour than currently. Their are no positive indictators to encourage expansion of employment or better business prospects.
Before if things were bad in the US, companies could turn to other parts of the world and balance it out and continue growth. This mess has unfortunately consumed the global.
The executives and board of directors need their assets confiscated and liens of repayment on their salaries and that of their family members until full recourse is made of all the capital loss and put them behind bars with no parole and have them pay for their stay in jail along with no perks and amenities should be provided in jail. They would do this to an average joe if they committed a crime, so why shouldn’t the same standards apply here.
