Richard Curran: Get a whistleblower to chair the new banking culture board
Former Barings rogue trader Nick Leeson, whose actions brought down the bank. Photo: David Conachy
July 22 2018 6:00 PM
The culture police are coming to a bank near you. Well, not quite the culture police and not quite to a bank near you. There is to be a new Irish Banking Culture Board (IBCB) as proposed by the banking industry itself after it had ripped off thousands of tracker mortgage customers in a €1bn scandal.
A banking culture board sounds a bit like regular trips to the opera, but that isn’t quite it. No, it is about improving the culture within banks.
Finance Minister Paschal Donohoe welcomed the fact last week that the ‘review and design’ phase of the new board had been completed. The bankers are not in a hurry to eat this particular piece of humble pie, given that the board was announced eight months ago and this is as far as they have gotten.
Last December, Donohoe said he expected it to be up and running in late 2018. There wasn’t any mention of time frames during the week, just an acknowledgement that the minister looked forward to engaging with the chairperson of the new board “in due course”.
Donohoe was right to make the distinction that this new board will be a culture board rather than the initial banker proposal from late last year that it would be a banking ‘standards’ board.
There is big difference between standards and culture. Pre-crash Irish banks had very high standards, but a less lofty culture. Defining a bank’s culture and therefore improving it, is pretty difficult to do. Precisely what this new board’s relationship will be with individual banks isn’t quite clear.
It sounds like a very worthy quango which, no matter how good or well-meaning it is, will struggle to measure or quantify its impact.
That might sound a little sceptical but Central Bank deputy governor Ed Sibley is full of scepticism too. When discussing banking culture last November Sibley said: “An organisation’s culture is formed by the assumptions, values, expectations and beliefs, which drive behaviours of staff. When we think about culture, what we are really talking about is behaviour.”
But when it comes to the tracker scandal which prompted this initiative, Sibley said: “This, ‘is it legal?’ attitude still pervades in too many institutions.”
He went on to say: “I am still sceptical as to whether the cultures and values that firms espouse are, in many cases, the ones that they really want and believe in, and will be sustained at moments of real pressure.”
The new culture board will appoint an independent chairperson through a selection panel which will also hire the chief executive and the board.
Donohoe expects it to be chaired by an independent non-banking individual, who has the “personal respect, credibility and trust of citizens”, he has said.
The non-banking bit might be mistake. The board should be populated with non-bankers but perhaps the chairperson should be someone who has worked inside banking and blown the whistle more times than a GAA referee.
Perhaps it could be someone like Tony Spollen, who did up the first internal bank report in AIB on bogus non-resident accounts. Or someone like Eugene McErlean, the former AIB internal auditor who blew the whistle on overcharging in 2001 only to be ignored by the regulators.
Perhaps Nick Leeson, the man who brought down Barings Bank, would understand the mindset within banking and have a good nose for what might really be going on.
Sibley gave advice to a banking conference last year on how to address culture and change it. He said it is up to the board of a bank to take responsibility for the bank’s culture. The board should oversee recruitment policy, hiring decisions and implementation of rewards, and incentivise appropriate behaviours. It should also oversee product development and how it is used.
All good stuff, but surely boards should already have a role in much of this.
His most appropriate advice came in the form of the questions boards should be asking: Is this sustainable? Is it in the long-term interests of our customers? Is this right?
It all seems like common sense, but if it had been applied in banking in the past, we would all be a lot better off.
No sign of house price soft landing coming any time soon
Are we about to get the proverbial soft landing in house prices? It eluded us in 2007 but perhaps 11 years later the rapid oppressive rise in house prices is going to slow down to a manageable and more sustainable modest increase.
It depends on what you call a soft landing. Estate agents Savills reckons there will be a sharp slowdown in house price growth in Dublin in the coming months as the supply of newly built homes ramps up.
House prices rocketed by 13pc in the year to April 2018 and Savills believes that could start to fall back to around 8pc by the end of the year.
It attributes the slowdown in growth to the fact that new home builds were up 46pc in 2017 and had a 27pc year-on-year expansion in the first quarter of 2018.
The logic is sound enough. The more houses you build the slower house prices will rise. And they may be right. But this shouldn’t necessarily be seen as good news – just less worse news for those thinking of buying a home.
These are still very big increases in house prices. If house prices go up by 8pc next year and 6pc the year after, a €300,000 house would cost €43,400 more to buy in 2020 than it would at the start of 2019.
The real financial killer for people here is how house prices have grown relative to weekly earnings.
Savills’ John McCartney pointed out that weekly earnings rose by 7.3pc between 2013 and the end of March 2018, while house prices have risen by 67.4pc and rents went up 39pc in the same period.
Young families are signing up for a lot of debt at a time when interest rates are low. Rates won’t always be this low.
A slowdown in house price growth would be welcome but there is no sign of the overall housing problem getting solved any time soon.
Still a few leprechauns hanging around our GDP numbers
The Government, the NTMA and the Central Statistics Office have all gone to a lot of trouble to warn about the vagaries of assessing the Irish economy through the prism of traditional GDP.
Just looking at Irish GDP, which includes all that multinational profit-shifting and intellectual property movement, not to mention aviation leasing, and you end up with so-called leprechaun economics.
Yet, GDP still grabs the headlines when it comes to reporting on Ireland’s economic performance. It is hard to ignore it when it seems to be going so well.
New figures for the Irish economic performance in the first quarter of 2018 were published last Thursday and the Financial Times reported how the economy recorded “near double-digit growth in the first quarter compared to the same period last year”.
It went on to report how our GDP accelerated by 9.1pc, and this is factually correct. The Finance Minister was throwing around the GDP numbers too.
“Today’s data also provide clear evidence of continued momentum in the economy this year with annual GDP growth of 9.1pc recorded in the first quarter,” Donohoe said.
But the figures also showed how even after seasonal adjustments GDP contracted in the first quarter compared to the last quarter of 2017.
Last year’s numbers were revised and showed that Irish GDP hit €294bn in 2017. But when a different measure, stripping out certain multinationals’ movements, is used (GNI*) that figure is €181bn – or €113bn of economic activity less.
GDP flatters everything for Ireland. In 2017 the Government debt-to-GDP ratio stood at 68pc , while the debt to GNI* ratio was 111pc.
Now sin sceal eile.
Sunday Indo Business