Today's post was inspired by a superbly perceptive piece of writing from one of my favourite columnists and editors of all time - William Rees-Mogg of The London Times.
I missed its publication, but my good friend Maureen Blandford - she of the Chicago Blandfords, and a confirmed Anglophile - kindly brought it to my attention.
It is titled: "The banks must rediscover Victorian values" - A mutual trust between client and bank was once the foundation of our financial system - we need to get it back
"The British are - or were - particularly good at banking. British banking financed the Empire and the Industrial Revolution. These achievements owed a great deal to the stability of the gold standard, which lasted from Isaac Newton's recoinage of gold in 1717 until Ramsay MacDonald's abandonment of it in 1931. More than two centuries of exchange-rate stability gave the British banking system a stability of its own and, associated with that, a high standard of trust."
He then goes on to recognise how things used to be, when trust, respect and loyalty actually meant something, when bank managers really were "pillars of society"
"The bank manager then occupied a similar position to the family solicitor or the family doctor. He hoped to maintain a long-term relationship with each client and he hoped that this relationship would survive for generations. He would offer general financial advice, and was concerned to keep the interest of the client and the bank in alignment."
"After the Second World War, relationship banking went into decline. The banks were attracted by the impersonal profits to be made in transactional banking. They did not look for character as essential to their security. They invested in one-off transactions and increasingly in derivatives. They also relied on credit card and other unsecured forms of lending that could largely be administered by automated processes."
Mr Rees-Mogg is a good deal older and indeed, wiser than I am. I do remember most of my respect remaining through the sixties and seventies, but I am hard put to identify a precise moment in time when I realised that dramatic changes were taking place.
"At the same time, global banking became infected by the more adventurous American attitude to risk. US banks, going back to their 19th-century origins, had always been more speculative than the British tradition. They were more willing to take a big risk for a big profit. In the period of the internet bubble of the 1990s and the housing bubble of more recent years, too many British and European banks made the mistake of accepting American levels of risk in the pursuit of maximum profits."
"Huge sums were lent to clients who might not be able to repay. The systems of bonuses gave bankers strong incentives to gamble with the bank's money. They could not be supervised adequately by senior staff who did not grasp the details of the new securities in which their banks were speculating."
"Where relationship banking still survives, there have been relatively few problems of bad debts. The problems have arisen in transactional and unsecured credit card banking with one-off or completely unknown customers. Of course the customers have often behaved badly; if a bank does not know its customers, who are only blips on a computer screen, some of them will behave badly. The bank only has itself to blame."
He then reminds us that there is no end to the obscene and twisted behaviour of the "Fat Cats"
Having failed to regulate themselves adequately; having failed to protect the interests of their investors; having encouraged borrowers to take totally unacceptable risks by borrowing way above their capability to repay; having bankrupted themselves and been bailed out by the government (for government, read taxpayer) - they continue to seek more ways in which to pile the misery on.
"The Sunday Times yesterday had a blazing example of the evils that can result."
"Banks issuing credit cards have found a legal way of turning unsecured debt into debt secured on house property. That means that credit card debt, which banks have been ladling out to all comers, can lead to the repossession of the family home. Which bank is notorious for the harsh use of this loophole of which credit card customers were given no prior warning? Apparently it is Northern Rock, which was "rescued" by being nationalised. So the grotesque situation has arisen in which the Government is repossessing the houses of credit card customers - to their considerable dismay - as part of the rescue of an incompetently run bank."
"The decline of moral responsibility has damaged British banks; it is the real flaw behind the credit crisis. There will be new regulation of the world's banking system after the crisis. Governments cannot risk another catastrophe on this scale. The banks need to change their behaviour. They need to re-establish relations with their clients and value experience in their staff. They need to beware of American-style, high-risk, high-return, policies. British banking was based on protecting the client's interest as well as the bank's. Bankers should not be ashamed of their Victorian heritage."
William Rees-Mogg has had a distinguished career with The Times and The Sunday Times. He was Deputy Editor of The Sunday Times before becoming Editor of The Times in 1967, a position he held until 1981. He was made a life peer in 1988. Since 1992 he has been a columnist for The Times, writing on a variety of issues. He has also been chairman of the Broadcast Standards Council and British Arts Council.
Tomorrow: We are back to the front-line, and my soap-box has been returned to the cupboard: Do join me for a particularly interesting week. JF
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