Lord Green, now the Government’s trade minister, told a House of Lords Committee that the rise of so called “casino” investment banking has seen lenders “deskill” their commercial banking businesses, which has led to “extraordinary” lending decisions about small companies being made, reports The Telegraph. Bank bosses “know it’s a problem”, he added.
Separately, the British Bankers Association (BBA) has called for the establishment of an independent body to “uphold ethical and professional standards” in UK banks. In a written submission to the Parliamentary Commission on Banking Standards, the trade body suggested that a new Banking Standards Review Council (BSRC) should be run by non-bankers and would “oversee ethical standards” in the industry. It could also have the power to strike-off rogue bankers.
Lord Green told the Lords small business committee that part of the ongoing problem in banking is the attraction of investment over business banking. “If you’re a bright, ambitious young banker, what did you want to do at any point over the past 10 or 20 years? You didn’t want to be the relationship manager in Rotherham, it was head to Canary Wharf,” he said. “Over time they [lost] strong talent in business banking. The central risk management function responds by disempowering them and you get into this downward spiral.”
Bank bosses publicly dismiss allegations from small business groups that relationship managers have too little power or experience to make sensible lending decisions.
Lord Green said he had seen “enough” evidence from small business owners of “somebody in bank x and bank y being extraordinary in the decision that was taken”.
The trade minister said “the good news” is that the banks’ chief executives are “all on the case” but warned that it’s “not something that you can turn on a dime”.
The stock of bank lending to companies has contracted by more than £150bn since the end of 2008.
Facing questions from the Banking Commission, Anthony Browne, the chief executive of the BBA, was told by Lord McFall argued that banks suffered from an “ethical blindness”.
Mr Browne agreed that it was an “obvious fact” that the Libor scandal had hit public trust in the banks. He said the revelation that banks had rigged the price of money revealed a “lapse of professional ethical standards that has damaged the reputation of London”, he said.
In its written submission, the BBA proposed strengthening the existing regulation of banks by expanding the Approved Persons Regime. Mr Browne said that those found to have breached the regime’s principles should be sacked.
As well as the “top down” improvements of creating the BSRC to monitor ethics and culture, the BBA suggested “bottom up” measures could include creating a Professional Standards Body to specifically watch those with professional accreditation.