Jeff Salway: Banks won’t accept blame for conning us

Published on 19/08/2012 00:00

YOU could call it an inauspicious start, except the Barclays chairman-elect isn’t even in the role yet.

Sir David Walker, who takes up the position in November, has already diverted attention from the bank’s troubles with some bold statements on where he wants to take it in future.

On the plus side, he has talked about the need to reform banker pay, arguing that “some elements of remuneration” support inappropriate behaviour.

However, his other comments were far less encouraging. In fact, for anyone hoping that the high-street banks are ready to learn from their mistakes and adapt accordingly, Walker’s utterances were somewhat ominous.

Walker has joined the growing number of banking figures talking down the so-called free-banking model, as they work out how to make the nascent fee-based era work to their best advantage.

If there was ever a time when Barclays and its customers needed a figurehead who recognises where the banks have gone wrong, it is now.

On the contrary, however, Walker – an investment banker – holds free banking responsible for the rampant mis-selling of recent years, such as that of payment protection insurance (PPI). He told a national newspaper that “because banks are not charging, it drives them inexorably into this sort of position”.

It’s like saying that Robert Maxwell had no choice but to raid the Mirror Group pension scheme because too few people were buying his newspapers.

Walker’s angle has been taken before, most obviously by Andrew Bailey, head of the Prudential Regulation Authority, which will soon take over from the Financial Services Authority as the City regulator. Bailey argued that if banks charged for current accounts they wouldn’t need to mis-sell other products to raise revenues.

We’ll find out just how flawed that argument is when the free banking era really is over. Mis-selling of the packaged current accounts that will form the foundation of fee-based banking is already rife.

Bailey missed a key point. Walker has missed it by an even greater margin, by implying that banks had no choice but to mis-sell.

My issue is not about the merits of free banking, which itself is something of a myth. That in the not-too-distant future we’ll be paying for current accounts – withdrawal charges and all – is not in doubt. What I do seriously doubt is the logic which says that such reform will alter bank behaviour.

What is unsettling is the apparent failure of the industry to acknowledge the deep flaws that contributed to mis-selling of PPI and other products, not to mention the recent Libor-fixing scandal.

Does Walker really think that if banks had uniformly charged for current accounts, mis-selling would never have occurred? That’s alarmingly simplistic.

Walker and his ilk are still not prepared to countenance the very distinct possibility that the banks erred out of greed and avarice and an absence of institutional ethics.

It’s easier for them to blame the millions of people who were conned into taking out PPI, including many who were never even told they were taking it out and those who wouldn’t have been able to claim on the insurance anyway.

Yes, there’s an element of consumers failing to take responsibility, but that’s beside the point. Bank staff deliberately withheld the key facts about the product and scared people into taking out PPI by telling them they’d withdraw their loan offer if they didn’t.

PPI isn’t the only example. Not by a long shot. Every day, pensioners are going into high-street banks in search of low-risk alternatives to the savings accounts giving them little or no income, only to be conned into taking out investment products that put them at risk of losses. People in their 80s are being advised to take out contracts with five-year terms and offering no access to their capital. It doesn’t take a qualified adviser to realise how wrong that is.

Such behaviour is the product of a system which, from the very top, is governed by remuneration and targets. Branch staff are under no illusion that targets must be met, regardless of the consumer detriment caused in achieving them.

That those at the top raking in millions for running these under-performing operations are entirely unwilling to admit that the system is flawed is unsurprising. It’s not free banking that’s caused the problem, but conscience-free banking.