(MENAFN- Gulf Times)
I have just finished reading Iain Fraser's excellent book Making It Happen which once again focuses on the collapse of RBS in 2008, the world's largest bank at the time and also coincidentally it is the tenth anniversary of the run on Northern Rock, which started the global financial crisis (GFC).
The book examines all the issues of culture and behaviour that became prevalent in the banking world from the mid-1990's onwards. It also focuses on the roles played by the regulators, governments, auditors, and rating agencies who stood by and allowed, even encouraged this disaster to happen. It is a shocking endicement of our industry, where naked personal greed ruled the day shareholders be dammed!
The RBS saga was repeated at HBOS and even at Barclays on a smaller scale. Major US and European banks were also laid low by the tide of toxic investment and loan assets.
The core driver here was, without a doubt, personal greed and moral turpitude! The traditions in the United Kingdom of prudent bankers caring for their customers went out the window....why? ‘Big Bang' in the UK in the eighties started the process where banks were allowed to buy stockbrokers. The major change, however, came in the last weeks of the Clinton presidency in the US when the Glass Steagall Act was repealed. This had stood since 1931 and had been brought in following the crash of ‘29 to prevent investment banking polluting customer deposits.
That, of course, is exactly what happened and a generation of investment bankers acquired deposit taking institutions and leveraged customer deposits to enrich themselves!
The UK, London followed suit, albeit in a slightly more restrained way.
We wonder what happened to the traditional ethics and probity of Scottish/British banking; to some extent the DNA was lost when thousands of experienced managers were exited in the 1990s and replaced by a plethora of graduates and lower end inexperienced workers etc. Sales at all costs started to prevail.
CEOs of the banks were then individuals who had little or no experience of basic commercial banking, mind you thought that the bank boards might have known better!
In the aftermath the Vickers Report into the GFC failed to go far enough, investment banking arms of the deposit taking institutions should have been floated off to investors who have a higher appetite for risk.
Total separation not a fancy illusory Chinese wall with an investment banker at the overall helm give me a break!
The worry is 'can it happen again with some of the behaviour that one sees in the US and the UK banking, look at recent issues around Wells Fargo and of course the headlong rush into extremely poor quality auto and credit card finance. So, just watch this space!
Glasgow-based John R Wright is an academic, veteran banker and a former CEO of Oman International Bank and Gulf Bank, Kuwait.
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