Epidemic of thieving bankers

Photo-by-Ian-Davidson

Introduction
Why have so many well paid, highly educated men (and it is almost entirely men) working in financial services caught the disease of fraud and theft? There is manipulation of LIBOR and FX rates, alleged dubious dealings in derivatives, insider trading; even down to evasion of train fares. Is the infection caused by greed, hubris, poor leadership or a corrupting culture? What is to be done?
Environment
Financial services is one of the most heavily regulated, monitored and controlled environments. Yet, even allowing for the gross incompetence of the regulators, the level of wrongdoing is breath-taking. It is essential, for the survival of the already low levels of trust in financial services, that the infection of thievery and self-enrichment is tacked with the vigor of attacking an epidemic.
Are societal norms to blame? Over the last few years we have seen enormous growth in tax evasion, expense fiddling and influence peddling (and that is only the politicians). It is arguable that the environment among the well off and those who should be setting an example in society is that obedience to the rules, both the spirit and the letter is for the little people. Even when caught the response is often that nothing wrong has been done; it is the rules that are at fault or that the regulations are to be gamed to the highest extent to the advantage of the individual. In that context I guess that a little rate manipulation is seen as quite acceptable. Informal sub cultures have developed, despite all the regulatory training and people development: where criminal or near criminal behavior is not just acceptable but encouraged. The disease spreads tenaciously, secretively, hidden from the cleansing light of day until it is too late. Certainly Human Resources appear to have lacked any form of X-Ray vision to detect the wrongdoing not just at an early stage but at any stage at all.
The Epidemiological approach
It is time that an epidemiological approach to the problem is taken. Examination of the causes, spread, transmission and monitoring of the disease in the hope of finding a cure or eliminating the causes of this epidemic is necessary and timely. We have big data tools, masses of data, specific examples and outbreak centers’ – perhaps even a patient zero or two. Trying to kill the diseases by punishing the host (in this case by large fines on the banks paid for, ultimately by the shareholders) is akin to killing the dog in order to get rid of the fleas.
Consequences
If we do not take the epidemiological approach now we risk simply driving the behavior underground making it harder to find and with even more painful consequences for the bank customers and the little people who always seem to carry the cost burden be it via higher taxes, austerity or erosion of personal wealth. This is the winter of our discontent, it is time to let lose the weapons of disease control before it turns in to a cancer that destroys the entire body of financial services.

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Banking Standards Inquiry

I had coffee with a former investment banking colleague last week. She complained to me that she had lost a lucrative deal because by the time she had got the compliance department to agree to the deal another bank had beaten her to the sale. I thought about this discussion when I read the CIPD’s excellent submission to the Parliamentary Commission on Banking Standards.
The CIPD submission makes a cogent argument that culture change is a necessity and standards of behaviour are key in tacking the current perceived malaise in banking across the globe. The problem from my viewpoint is that the nature of financial systems makes culture change in banking almost impossible. The reality of what happens “on the ground” makes change very difficult and a very long term project.
The arguments supporting this thesis are first that the entire financial services structure is built on the profit imperative. Investors giving money to fund managers expect above average returns. The fund managers and shareholders expect above average returns to reward their investment. That puts pressure on Boards to make above average profit; this pressure is then passed down the line to the coal face where revenue earning staff are under great pressure to produce profits both to keep their jobs and to make a bonus. It is difficult to see a situation where fund managers and shareholders say “don’t make me so much money” the obvious result of reducing risk.
The second argument, which is also reflected in the CIPD submission, is the issue of the labour market. High earning revenue makers such as traders as not a common species. The best beasts in the financial services jungle require high levels of self-belief, education, skills and intuition. Those with this skill set are far ahead of the herd in achievement of revenue generation and thus ruthlessly hunted by banks seeking to boost profits. The way this hunting is carried out is by financial incentive supported by a “self-reinforcing monolithic working culture”. Status is measured first by employer and second by earnings. So working for Goldman Sacs is seen as being of higher status than working for UBS for example. But money is the big differentiator; – bigger bonuses = higher status.
Proof for the above assertions can be seen just by reading the newspapers. Despite years of the banking crisis we are almost weekly hit by stories of alleged wrongdoing from the top of organisations – the recent disclosures around alleged LIBOR fixing; to the alleged wrongdoings of individual traders. It could be argued that due to the factors above, nothing very much has really changed in the culture and behaviours of those who lead, manage and work at the coal face of our financial services.
The CIPD submission to the Banking Standards Inquiry is an excellent document that highlights the key issues. The unfortunate truth is that diagnosing the ills is unlikely to lead to any early cure. An impression not aided by the body holding the inquiry being portrayed by the media as lacking the very culture and behaviour that it seeks to impose (if that were possible) on the banking sector. Pots and kettles anyone?