Leaders: Good reasons for demonisation of bankers

Has the time come to halt the demonisation of bankers? Outgoing Bank of England governor Sir Mervyn King thinks so. His point is not simply that it has gone on long enough and that it is time to move on.

Royal Bank of Scotland's Gogarburn headquarters in Edinburgh. Picture: Neil Hanna

His argument is that the financial crash was a product of failures in the banking system rather than incompetent and reckless individuals.

There is much in this thesis. Our financial system suffered from a collective misjudgment about the degree of risk involved, both in commercial property and residential mortgage lending in the low interest rate era of 2003-7. There was also a collective failure in the headlong expansion of investment banking activities, the growth of complex derivatives products and trading in particular. Arguably greatest of all was the culture of corporate aggrandisement that led to the ill-fated RBS take-over bid for ABN Amro.

This was supported by teams of advisers, accountants and lawyers and the investment community at the time with little questioning. The financial crisis was then quickly followed by mis-selling scandals such as Payment Protection Insurance (PPI) and allegations of Libor rate-fixing.

In all of this, it would be obtuse to deny that certain senior bankers had a greater responsibility than others in failing to exercise prudent stewardship, and that some had a particularly questionable record in their commercial lending decisions. Many of these have now resigned or been removed from executive positions.

Sir Mervyn is right to warn that the continuing demonisation of individual bankers will not solve the wider problem of a catastrophic culture failure.

However, there are powerful reasons why this has persisted. There was the failure of the (now defunct) Financial Services Authority to bring excessive lending practices to heel. And it then took an inordinately long time for full reports to be published on what went wrong. The Bank of England itself is not beyond criticism for having presided over an asset price bubble in the property sector and failing to take action by way of stricter monetary policy.

As for the bankers themselves, the persistence of excessive bonus payments and rewards for failure while colossal write-offs, mis-selling scandals and allegations of market abuse unfolded, displayed an offensive arrogance that has worked to keep public anger on the boil. A much swifter response to the public mood would have helped. But even now banks continue to pay out large sums in remuneration packages.

At RBS and Lloyds Banking Group in particular, taxpayer support is still required and recovery, while welcome, is still well short of a restoration of dividend payments to shareholders (the biggest of them pension funds) whose investment was all but wiped out.

An end to demonisation is not for senior establishment figures to dictate but for bankers themselves to effect by sustained prudent behaviour to rebuild public trust.

Possible fix for gay ministers row

Another Church of Scotland General Assembly – and another crisis looming on the ordination of gay ministers. In a critical session today, revisionists want to see gay ministers put on an equal footing with their heterosexual colleagues; traditionalists want to maintain the status quo.

The row has raged since 2009, when the Assembly upheld the appointment of an openly gay minister. A further vote two years ago saw the Assembly agree to allow gay ministers appointed prior to 2009 but put a moratorium on further appointments. It established a commission to report on the implications of allowing further gay appointments. This it is now about to do.

Secular public opinion has moved in the interim to a more liberal position. But it is not clear that everyone in the Kirk has moved likewise. It is claimed that as many as 60 congregations might leave the Church if the revisionists win the vote.

It all looks irreconcilable. But a saving grace of the Church of Scotland is its markedly democratic nature.

Professor David Fergusson, principal of Edinburgh University’s divinity school, is championing a “third way” amendment that places greater emphasis on a congregations’ right to exercise a choice over the appointment of ministers. He warns that unless such a compromise is agreed, it could take the Church a “generation to resolve” differences.

The amendment, which was suggested in the Kirk report on gay ordination, deserves consideration. It would allow the Kirk to move forward without, it is to be hoped, causing a schism which would further undermine its standing in Scotland.