The numbers are once again staggering, the arrogance breathtaking. Yes, it’s another week, another banking scandal. Channel 4 News’ economics editor, Paul Mason, expressed what many felt when he went into something of a rage while reporting on the latest banking scandal from outside the offices of RBS. Mason later explained that the clip that was aired was filmed after he had had time to calm down, so exasperated was he that so little had changed in the last five years. As he put it, “It’s six years since I had to stand outside RBS for its near collapse and I’m sick of having to return there”

One of the more dispiriting aspects of the fines issued this week to five major institutions for fixing foreign exchange rates is not that it happened at all, but that it was happening right up to last year. RBS has been warned time and again that its internal controls were not robust enough to pick up this kind of behaviour. There has been strong language and condemnation used all sides, from Martin Wheatley at Financial Conduct Authority, which issued the UK fines, to Andrea Leadsom, economic secretary to the Treasury (and City minister). Leadsom toured TV and radio studios giving interviews talking very bluntly about the serious nature of the offences and calling for the toughest treatment for any bankers found guilty of misconduct by the ongoing Serious Fraud Office.

This is unlikely to be the last revelation of major wrong doing from the world of banking. With so much money at stake – and with little concept of any genuine victims – the temptation to stretch the rules to the limit remains as strong as ever. And with as much pressure as ever from investors to show improved performance management are often prepared to look the other way and not ask too many difficult questions.

With so much money at stake, the temptation to stretch the rules to the limit remains as strong as ever
Of course the only counter to this temptation to turn a quick buck, regardless of the ethics, is a corporate culture that rewards those doing the right things and genuinely punishes those who step across the line. Former Barclays chief executive Bob Diamond described culture as “what people do when no one’s looking”. That captures part of the story. But the bigger part is what people do even when they know that management and investors are watching.

The big banks are under greater pressure than ever, as one set of regulators look to crack down hard on corruption while another look to make banks safer, through enforcing higher capital ratios. In the UK, the Competition and Markets Authority (CMA) is also looking into whether the market for retail banking is too closed, although at the same time they face increased disruption from a wave of new entrants (from challenger banks to peer-to-peer lenders to new payment systems). All this means that the major banks are under greater pressure in almost all areas of activity. These are hardly ideal conditions for forging new cultures focused on a long-term perspective, customer-centricity and more ethical behaviour. And yet this is exactly the challenge facing the leaders of all major banks. Some can lay claim to being in the middle of projects to adjust corporate cultures. While it is true that culture is not easy to fix quickly, as Paul Mason’s performance reveals, patience across society is running very thin with naughty bankers. It is likely that before long the CMA will force through new rules making it much easier to switch providers, just as a wave of new competitors enter the market, free from the reputational legacy of the financial crisis. In short, consumer and market pressures may be what forces through the cultural change that we all want to see.

On a different, but related, note there has been lots of discussion this week as to how the government should spend the money it raises from the fines imposed by the FCA. Leadsom talked in her interviews of using the money for the public good. Hector Sants, former head of the FSA, popped up on the Today programme to showcase a Church of England schools scheme to launch savings clubs, supported by Credit Unions, in primary schools.

http://economia.icaew.com/opinion/november-2014/banks-hit-with-record-fines