Banks failing to heed the lessons of Lehman

It's one year on - but banks are reverting to their bad old ways, says a leading think-tank.

by
Last Updated: 31 Aug 2010

This time last year, the financial world was reeling from the impact of Lehman Brothers filing for bankruptcy – an event that froze the credit markets and sent the entire global economy spiralling into recession. But 12 months later, the banks don’t seem to have learned their lesson, according to the Institute for Public Policy Research. The think-tank argues that the recent return of bumper bonuses suggested a ‘back to business’ attitude in the City, increasing the chances of a similar crisis in the future – unless policy-makers act fast. Fortunately for them, politicians rarely miss an opportunity to bash a few bankers…

OK, so this IPPR argument rather smacks of Lehman-anniversary headline-grabbing. But although there’s nothing hugely novel in its new report (which bears the ambitious title: ‘How to make capitalism better’), it makes some good points nonetheless. For all the talk of wide-ranging financial reform, policy-makers haven’t actually done much yet, it points out – and there still doesn’t seem to be any kind of global consensus on what these reforms should look like.

Indeed, the return of big City bonuses illustrates how little has changed, the IPPR suggests. ‘Alarm bells should be ringing with the early signs of a ‘back to business’ attitude in the City,’ says its senior economist Tony Dolphin, calling for the Government to ramp up regulation and address ‘market failures in innovation, training, infrastructure and finance’. The IPPR knows that it’s preaching to the choir on this one: only today, PM Gordon Brown told the BBC he was ‘appalled that some institutions are already wanting to return to the old ways’, while last night President Obama also scolded Wall Street for ignoring the lessons of the financial crisis.

The Bank of England’s director of financial stability Andrew Haldane reckons the sheer size of these banks is the real problem. Recent events has proved that bigger is not necessarily better, he suggested yesterday, arguing that it may be time to start ‘unbundling’ financial services. ‘Perhaps there is a case for a focus on the 'local' as much as the 'global'; for more micro-finance and less macro-finance,’ he said. This would not only make the consequences of an individual failure less severe, but it might also be the only way to rebuild trust, he said (a subject close to MT’s heart, of course).

Today’s figures on bank-related complaints certainly won’t help on that score. For the first time ever, the financial ombudsman has chosen to name and shame the worst offenders, and Britain’s five biggest banks accounted far more half of all the complaints lodged during the last six months. Lloyds Banking Group was the worst of the lot: the part-taxpayer-owned bank received over 15,000 complaints, of which 82% were upheld (the average across the sector was 59%). At Black Horse, its lending subsidiary, this proportion jumped to 95%, the highest of any business considered. Not terribly impressive.

So bank reforms won’t exactly be flying in the face of public opinion. Let’s hope the policy-makers eventually get their act together - one Lehman's enough for a lifetime.


In today's bulletin:

Inflation down again - as high street delivers mixed results
Banks failing to heed the lessons of Lehman
Editor's blog: The childishness of the cuts debate
Can offsetting help SMEs avoid redundancies?
Books Special: The colossal failure of Lehman Brothers

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