Like most people who grew up north of the M25, my cultural expectations of those money-making for banks in the square mile were set hard by the tone of the 1980s: wealth, decadence, and all the gentle subtlety of a chalk-stripe, double-breasted suit, with bright red tie and braces. The culture of the City has, for many Brits, felt very far away. It has felt like a different country, where different rules, different standards apply.
And yet, this is a view you come to if you consider only recent history. Given where Britain’s industrial history began, the making of British financial services is as much a story of economic change in Liverpool, Manchester, Edinburgh and Glasgow as it is London. Factory owners and shipping lines needed bankers, and the centres of our northern cities bear witness to this past as the old bank buildings host the new trendy bars and restaurants. What’s more. Financial services is not – even now – purely a business crucial to London or South East England. Two thirds of the industry exists outside of London and the South East. Credit card providers, insurers, pension funds. Companies doing this work provide employment for British people from all over.
The industry is like a huge octopus. Its tentacles reach everywhere, as its role in providing capital and credit to businesses and consumers determines the speed and volume of money moving round our country. From the credit lines that help people buy British made cars through to local government pension funds shaping town centre development, well functioning money matters to functions that are not obviously purely financial.
We found this out to our cost, as poor practices in the industry, and a get-rich-quick culture, lead to the death spiral of the 2008 banking crash. This was a deep crisis, to which politics and the state was forced to respond before it led to total collapse.
Ironically, the Brexit vote has brought about something of the reverse situation. A political crisis that has collapsed the value of sterling – and which could have done worse in the short-term – has been stemmed by the financial markets successfully managing risk. We don’t yet know the longer term impact of Brexit, but we do know that business has valiantly kept the show on the road despite serious political upset.
What is the lesson here then?
Firstly, we should cease to think of financial services as impacting one part of the country or one part of our industry. The name The City is deeply unhelpful. Financial services is important to pretty much all our cities. But that’s why we need a completely different policy debate that restores the role of regional financial institutions like building societies, and hopefully creates new ones to back regional businesses.
Diversity is good, but too often Westminster has responded to the needs of big banks close by, rather than to the diverse needs of our regional economies.
Secondly, given the pervasive nature of financial services, it is absolutely vital that despite the Brexit turbulence, we maintain clear unambiguous standards in our financial services industry. Now the UK has lived through the consequence of poor standards, not just in 2008, but before then. It is easy to overlook mis-selling scandals like endowment morgages or the failure of pension funds.
What is the consistent lesson from all of these scandals? Regulation is important. Powerful regulators can do a lot of good to maintain good practices, and substantially further consumer interests.
But by itself regulation can never deal with the worst offenders determined to shaft the public, and regulation will normally risk becoming over-bureaucratic and ineffective unless we maintain a culture of high standards in our financial services institutions.
What do I mean by culture? Essentially the values that a business lives by. Is a company’s purpose to squeeze every penny out of their customers? Or to charge them a fair price for managing their money? Do businesses want to create new financial products just to undercut the next firm, or because it will genuinely help more companies succeed, or more Brits do well?
Companies have to answer these questions truthfully for themselves, but meanwhile, policy makers must prioritise maintaining stable standards despite the current political mess we are in. The public will not thank us for even more uncertainty and opening them up to even greater risk.
Barclays has commissioned a report ‘‘What have the Capital Markets ever done for us? And how could they do it better?’’ by New Financial with the hope to start a debate about the value of capital markets to the economy, especially in the UK. Many thanks go to those who joined us at our events with New Statesman so to examine the report’s findings in detail.
Related
