0:00:04 > 0:00:07Inside this anonymous building,
0:00:07 > 0:00:09something extraordinary is taking place.
0:00:11 > 0:00:13There's a bank at work here,
0:00:13 > 0:00:17with a colossal task never undertaken before.
0:00:19 > 0:00:21Not issuing loans.
0:00:21 > 0:00:23Not managing savings.
0:00:24 > 0:00:25Not preparing statements.
0:00:27 > 0:00:33Instead, our banks are handing money out.
0:00:33 > 0:00:35Billions and billions of pounds.
0:00:37 > 0:00:39In centres like this across the country,
0:00:39 > 0:00:43the big banks are employing thousands of staff to compensate
0:00:43 > 0:00:47millions of customers who have been mis-sold financial products.
0:00:48 > 0:00:51There's very little that you can say to defend it.
0:00:52 > 0:00:56For a large number of customers, it was a rip off.
0:00:56 > 0:00:58We were too short-term focussed.
0:00:58 > 0:01:01I think we were too aggressive, and we were too self-centred.
0:01:02 > 0:01:07Over the decades, banks had come to think of their customers as a commodity.
0:01:09 > 0:01:11Customers were viewed as a wallet.
0:01:11 > 0:01:13So, "we want a bigger share of their wallet",
0:01:13 > 0:01:15was this phrase that's still used today.
0:01:17 > 0:01:21Five years ago, the banks brought the country to its knees.
0:01:21 > 0:01:23Now they are provoking yet more accusations
0:01:23 > 0:01:27that they destroy businesses and ruin lives.
0:01:27 > 0:01:31We're going to lose everything, and it's really just not fair
0:01:31 > 0:01:33of the banks to make us go bust.
0:01:34 > 0:01:37There is a real sense that, on almost every front,
0:01:37 > 0:01:39banks simply can't be trusted.
0:01:40 > 0:01:46This is how the biggest mis-selling scandal in British history has come about.
0:01:46 > 0:01:48Banks may have to repay £25 billion,
0:01:48 > 0:01:52twice the country's budget for transport and roads.
0:01:55 > 0:01:58It's the story of the extraordinary journey our banks took,
0:01:58 > 0:02:01as they changed beyond recognition...
0:02:01 > 0:02:03This machine is called an automatic bank teller,
0:02:03 > 0:02:06for self-service banking 24 hours a day.
0:02:07 > 0:02:10..and how millions of us went along for the ride.
0:02:12 > 0:02:15If you got in at the beginning, the credit boom will have been
0:02:15 > 0:02:17very, very good for you.
0:02:17 > 0:02:19It's great for consumers, they're getting a better deal,
0:02:19 > 0:02:21they're getting better choice.
0:02:21 > 0:02:24Now, five years after the crash, with our financial system
0:02:24 > 0:02:29still in turmoil and beset by scandal after scandal,
0:02:29 > 0:02:33what do want from our bankers, and can we ever trust them again?
0:02:48 > 0:02:51The Hotel Piccadilly is famous for its tea dances,
0:02:51 > 0:02:54dancing holidays and dancing courses.
0:02:57 > 0:03:00Former dancing teacher Terri Flett and her husband Stewart
0:03:00 > 0:03:03were so smitten with this Bournemouth institution,
0:03:03 > 0:03:05they just had to have it.
0:03:08 > 0:03:11The hotel, for me, was a dream, really.
0:03:13 > 0:03:17That's what my wife's always wanted. She wanted her own ballroom.
0:03:17 > 0:03:19The hotel sort of came with it.
0:03:21 > 0:03:23When they put in their offer six years ago,
0:03:23 > 0:03:26the Fletts needed to borrow £1.75 million.
0:03:28 > 0:03:31The bank helped us to get a mortgage, so that was all wonderful
0:03:31 > 0:03:34and it happened very quickly and very easily.
0:03:36 > 0:03:38But their dream became a nightmare.
0:03:40 > 0:03:44The bank persuaded them to take an interest rate swap,
0:03:44 > 0:03:48a kind of insurance policy to offset any rise in their mortgage rate.
0:03:48 > 0:03:52But what the Fletts didn't realise was that if interest rates fell,
0:03:52 > 0:03:56they would have to start paying the bank thousands every month.
0:03:57 > 0:04:02And after the crash, that's exactly what happened.
0:04:02 > 0:04:04It was a disaster, really.
0:04:04 > 0:04:07The more the rate went down, the more we paid.
0:04:07 > 0:04:11And we were paying about £6,500 a month,
0:04:11 > 0:04:16which was a huge amount of money to us, on a new business.
0:04:16 > 0:04:18We didn't really understand what we were getting into.
0:04:18 > 0:04:23We assumed it would be good for us because the bank told us.
0:04:23 > 0:04:25We never dreamt that we would be in this position, you know,
0:04:25 > 0:04:27where it was costing us so much money.
0:04:31 > 0:04:32The Fletts feel betrayed.
0:04:36 > 0:04:38By pressing them to take on this policy,
0:04:38 > 0:04:41their banks benefited at their expense.
0:04:43 > 0:04:47Nobody told us that it would cost so much.
0:04:48 > 0:04:53If I'd have known that our business, our home, our marriage was at risk,
0:04:53 > 0:04:58I just wouldn't sign it, and nor would any other small business.
0:04:58 > 0:05:02I thought the bank were trying to help us stay in business...
0:05:03 > 0:05:05..and it doesn't appear like that now.
0:05:09 > 0:05:11The Fletts are not alone.
0:05:11 > 0:05:14Tens of thousands of others have been persuaded by their banks
0:05:14 > 0:05:19to sign up for interest rate swaps, and many are deeply unhappy.
0:05:19 > 0:05:22These are our businesses. Often, they're our homes at risk.
0:05:24 > 0:05:28Bully Banks is a pressure group, representing small and medium-sized
0:05:28 > 0:05:31business owners protesting against these financial products.
0:05:33 > 0:05:37My judgement, and I've been a litigation lawyer for 37 years,
0:05:37 > 0:05:41this is one of the worst cases of injustice I have ever seen.
0:05:41 > 0:05:44What the banks were doing was quite extraordinary.
0:05:44 > 0:05:48They were basically misleading people into buying products
0:05:48 > 0:05:51which were unsuitable for their needs
0:05:51 > 0:05:55and which carried considerable risks, and which were very expensive,
0:05:55 > 0:05:59and from which the banks made quite substantial profits.
0:06:01 > 0:06:04These accusations are only the latest in a litany of charges
0:06:04 > 0:06:06against Britain's high street banks.
0:06:08 > 0:06:11We look back over many, many years,
0:06:11 > 0:06:15and we see banks almost constantly mis-selling a range of products
0:06:15 > 0:06:18to customers, be it pensions, be it endowments, be it PPI,
0:06:18 > 0:06:23be it interest rates swaps, all of those things are endemic
0:06:23 > 0:06:27of a culture of mis-selling, where that is rewarded within the bank.
0:06:27 > 0:06:30We've calculated, if you add all these mis-selling scandals together
0:06:30 > 0:06:35you're at something like £27 billion and counting.
0:06:35 > 0:06:38Most colossal amount of cost.
0:06:42 > 0:06:44Mis-selling may have been going on for years.
0:06:44 > 0:06:47But it's only since the government spent over £130 billion
0:06:47 > 0:06:50propping up the banks - way more than we spend
0:06:50 > 0:06:54on the NHS each year - that politicians of all parties
0:06:54 > 0:06:57have been lining up to rip into the bankers.
0:06:57 > 0:07:01They threw traditional relationship banking over the side
0:07:01 > 0:07:06and sold useless insurance and dodgy derivatives instead.
0:07:06 > 0:07:08Irresponsible behaviour was rewarded.
0:07:09 > 0:07:13Failure was bailed out, and the innocent,
0:07:13 > 0:07:16people who have nothing whatsoever to do with the banks, suffered.
0:07:16 > 0:07:21We need banks that serve the country, not a country that serves its banks.
0:07:25 > 0:07:29Yet the scandals keep coming, creating a crisis of trust so deep
0:07:29 > 0:07:32that a Parliamentary Commission has been set up to examine
0:07:32 > 0:07:38why it all continues going wrong and what can put things right.
0:07:38 > 0:07:41You seem to be saying the only way you can motivate them
0:07:41 > 0:07:45to any significant extent is with cash.
0:07:45 > 0:07:50What happened was that there was a progressive loss of perspective,
0:07:50 > 0:07:54spiritually, morally, economically.
0:07:54 > 0:08:00"We've got to make more money, we've got to use this huge customer base more effectively."
0:08:00 > 0:08:02Lost sight of the fact the huge customer base
0:08:02 > 0:08:05is actually a lot of individuals who are pretty vulnerable
0:08:05 > 0:08:07when taken one by one.
0:08:07 > 0:08:10The mis-selling scandals have created a sense amongst the public
0:08:10 > 0:08:13that they can't really trust the banks on anything.
0:08:13 > 0:08:18They couldn't trust the banks to be essentially safe and secure
0:08:18 > 0:08:21and not collapse, they couldn't trust the banks to be honest
0:08:21 > 0:08:25in terms of when they sold products to them, and there is a real sense
0:08:25 > 0:08:28that, on almost every front, banks simply can't be trusted.
0:08:31 > 0:08:33It's not only the public and politicians
0:08:33 > 0:08:36who say banks have failed us again and again.
0:08:36 > 0:08:39Finally, even the bankers say they agree.
0:08:40 > 0:08:44The relationship between society and the bank industry
0:08:44 > 0:08:46has completely broken down.
0:08:46 > 0:08:50It's a huge issue for the banks, but it's also a big issue for society.
0:08:52 > 0:08:55Banks have to be the cornerstones of the economies
0:08:55 > 0:08:56where they do business.
0:08:56 > 0:08:59We have to deliver returns for our shareholders,
0:08:59 > 0:09:02but we also have to do the right thing for our customers and clients.
0:09:04 > 0:09:09I have worked in four different countries where I managed several different banks,
0:09:09 > 0:09:13and the trust of UK customers in banks
0:09:13 > 0:09:16is the lowest I have seen in the countries I have worked.
0:09:16 > 0:09:17This must change.
0:09:19 > 0:09:22Restoring trust is not going to be something that happens overnight.
0:09:22 > 0:09:26We have to earn that trust back, you know, inch by inch,
0:09:26 > 0:09:27and it will be a long process.
0:09:29 > 0:09:32Having this continuous, sort of, almost vicious cycle
0:09:32 > 0:09:35of bank bashing and scandals and so on, is terrible for banks,
0:09:35 > 0:09:37and even more terrible for the country as a whole.
0:09:37 > 0:09:40We have to get back into a healthy situation
0:09:40 > 0:09:43where banks can be a normal part of the economy again.
0:09:45 > 0:09:49To understand the crisis facing our high street banks today,
0:09:49 > 0:09:51we need to shine a light on three decades
0:09:51 > 0:09:53of radical change in banking.
0:09:55 > 0:09:59It was a process that transformed the time-honoured way they did business.
0:10:02 > 0:10:04They placed a ruthless pursuit of profit at the heart
0:10:04 > 0:10:06of their business model,
0:10:06 > 0:10:10and embraced industrialised, automated banking.
0:10:10 > 0:10:12And the hard sell became pervasive,
0:10:12 > 0:10:15revolutionising Britain's retail banking culture.
0:10:17 > 0:10:20MUSIC: "Who Do You Think You Are Kidding, Mr Hitler?" by Jimmy Perry
0:10:20 > 0:10:23# Who do you think you are kidding Mr Hitler? #
0:10:23 > 0:10:27This is the quintessential banker people say they're yearning for today.
0:10:27 > 0:10:29Morning, Pike.
0:10:29 > 0:10:31A pillar of the community.
0:10:31 > 0:10:35Look here, Walker. This £5 note's a forgery.
0:10:35 > 0:10:38We do have this nostalgia for a lost banking paradise,
0:10:38 > 0:10:39the Captain Mainwaring world.
0:10:39 > 0:10:42- What do you mean it's a fake? - Of course it's a fake, and a very obvious one, too.
0:10:42 > 0:10:45It doesn't really bear very close examination.
0:10:45 > 0:10:47Only a fool would have been taken in by it. Who gave it to you?
0:10:47 > 0:10:49- You did!- Well, didn't you examine it? I did?
0:10:49 > 0:10:52The reality, I feel, was somewhat different.
0:10:52 > 0:10:54All right, I'll give you five ones for it.
0:10:54 > 0:10:57We shouldn't forget that, actually, in Dad's Army, Captain Mainwaring
0:10:57 > 0:11:02was portrayed as a bumbling, pompous, slightly inept figure.
0:11:04 > 0:11:06You know, you're a financial wizard, Mr Mainwaring.
0:11:06 > 0:11:08I don't wonder they made you a bank manager.
0:11:11 > 0:11:14They may have been short on financial wizardry,
0:11:14 > 0:11:18but back then, at least bankers refrained from the hard sell.
0:11:18 > 0:11:21- ARCHIVE:- 'Bankers maintain the safe, respectable,
0:11:21 > 0:11:25'almost religious trappings that have come to be associated
0:11:25 > 0:11:27'with financial prudence.'
0:11:27 > 0:11:30It's very important to understand that banks do have
0:11:30 > 0:11:33this double-faced aspect to them.
0:11:33 > 0:11:36They're both utilities there to serve society and the public,
0:11:36 > 0:11:39and they're also profit seeking enterprises.
0:11:39 > 0:11:43Now, which part of that twin identity you emphasise
0:11:43 > 0:11:45tends to change throughout history.
0:11:45 > 0:11:46- ARCHIVE:- 'People trust banks.'
0:11:48 > 0:11:50If you go right back to the beginning of the 20th century,
0:11:50 > 0:11:53the banks existed to collect deposits from individuals
0:11:53 > 0:11:56and lend them to companies.
0:11:56 > 0:11:59And the individuals were, more or less, passive providers of funds,
0:11:59 > 0:12:02and the companies were the real clients of the banks.
0:12:03 > 0:12:05And even the buildings reflected
0:12:05 > 0:12:08the stolid values of high street banking.
0:12:12 > 0:12:15This pub was once a branch of National Westminster Bank.
0:12:18 > 0:12:20Symbolically, it was very important.
0:12:20 > 0:12:24The customer would walk in across a marble floor,
0:12:24 > 0:12:29he or she would be surrounded by acres of mahogany and oak,
0:12:29 > 0:12:34by rich, brass fittings, by huge chandeliers.
0:12:34 > 0:12:39It exuded power and stability and respectability and strength.
0:12:45 > 0:12:47As personal wealth increased,
0:12:47 > 0:12:50banks decided to open their doors to more customers.
0:12:53 > 0:12:55What can I do for you?
0:12:55 > 0:12:57I'm getting married,
0:12:57 > 0:12:59and I thought I ought to have my money paid into a bank.
0:12:59 > 0:13:02I think that would be well worthwhile. An excellent idea.
0:13:03 > 0:13:08By the 1970s, around a half of adults had a bank account.
0:13:08 > 0:13:11You'd have had a current account and a deposit account, and that would have been it.
0:13:11 > 0:13:13And the bank manager would have known more about
0:13:13 > 0:13:16your personal affairs than you might perhaps have preferred.
0:13:18 > 0:13:21But all that was about to change, as Britain's banks,
0:13:21 > 0:13:23like pretty much everything else,
0:13:23 > 0:13:27were swept up in the social and cultural revolution of the late '70s.
0:13:30 > 0:13:33When Mrs Thatcher became leader of the Conservatives,
0:13:33 > 0:13:37she was determined to reshape the economy,
0:13:37 > 0:13:40and banks were a prime target.
0:13:40 > 0:13:44There's still a little bit sticking up there, you can see it in the reflection.
0:13:44 > 0:13:49She was invited by one of our biggest banks to lunch,
0:13:49 > 0:13:53and these bankers were very patronising towards her
0:13:53 > 0:13:56and gave her a very hard time.
0:13:56 > 0:13:59And I said to her, "Don't worry, Margaret."
0:13:59 > 0:14:02"When the trumpets sound and the elections called, they'll put all
0:14:02 > 0:14:07"this on one side, they'll forget about it and they'll vote for us."
0:14:07 > 0:14:12And she said, "THEY might forget about it, but I won't."
0:14:14 > 0:14:18So it always rather affected her attitude to banks,
0:14:18 > 0:14:21she didn't really trust them very much,
0:14:21 > 0:14:23and she didn't think they were very well run.
0:14:25 > 0:14:30She wasn't just settling scores, she wanted to change the country.
0:14:30 > 0:14:34After all, this was the start of the free market revolution.
0:14:34 > 0:14:37- THATCHER:- 'It is our passionate belief that free enterprise
0:14:37 > 0:14:41'and competition are the engines of prosperity
0:14:41 > 0:14:44'and the guardians of liberty.'
0:14:44 > 0:14:48Only dynamic, growing, free enterprise economies can provide.
0:14:48 > 0:14:52Stagnant, state-grown economies cannot and never will.
0:14:55 > 0:14:59There was a change which occurred deliberately during the time
0:14:59 > 0:15:02that I was in government, from a highly regulated,
0:15:02 > 0:15:08highly controlled economy, to one which was much freer,
0:15:08 > 0:15:12in which people were encouraged to do their own thing
0:15:12 > 0:15:15and if they did successfully, then they would benefit,
0:15:15 > 0:15:17and the economy would benefit.
0:15:17 > 0:15:18And so there was a feeling,
0:15:18 > 0:15:21and there was some justice to it, as well,
0:15:21 > 0:15:24that the city was being over-restrained,
0:15:24 > 0:15:27could do a lot more, make a lot more profit for Britain
0:15:27 > 0:15:30and more profit for themselves in Britain means more tax revenue,
0:15:30 > 0:15:34the politicians hope, for them to spend on their priorities.
0:15:34 > 0:15:37- Morning. - Morning, sir.
0:15:37 > 0:15:40Cecil Parkinson was given the job of shaking up the City
0:15:40 > 0:15:43and its male-dominated banks.
0:15:43 > 0:15:46I don't think any aspect of Britain changed more
0:15:46 > 0:15:50than our financial markets during our period in government.
0:15:51 > 0:15:54The changes that took place in the City at that time
0:15:54 > 0:15:57were even more radical than anything that happened in industry.
0:16:00 > 0:16:01The Government deregulated,
0:16:01 > 0:16:05reformed and restructured the financial world.
0:16:07 > 0:16:09ARCHIVE: 'Now the city is about to undergo a siege
0:16:09 > 0:16:11'which could shake it to its foundations.
0:16:13 > 0:16:14'They call it the "Big Bang".'
0:16:20 > 0:16:22The Big Bang happened in the City of London today.
0:16:22 > 0:16:24It was the day when old-fashioned practices
0:16:24 > 0:16:27gave way to new ways of working, and to the computer.
0:16:29 > 0:16:33Age-old restrictions were abolished, allowing banks to move beyond
0:16:33 > 0:16:38simple savings and loans into more lucrative areas, like share trading.
0:16:43 > 0:16:47Their new operations were known as investment banking,
0:16:47 > 0:16:49and the ethos was all about maximising profit
0:16:49 > 0:16:51and reaping the rewards.
0:16:51 > 0:16:53Cancel it. Cancel five for 15.
0:16:56 > 0:16:59Investment bankers, by and large, are very driven individuals...
0:16:59 > 0:17:02Six, seven at the moment. I'll come back in a second.
0:17:02 > 0:17:05..and they began to rise to senior positions in the banks,
0:17:05 > 0:17:10their risk appetite, their methodology began to infect
0:17:10 > 0:17:13and affect the staid banks that they'd joined.
0:17:13 > 0:17:15Working for you now, working for you now.
0:17:15 > 0:17:19At an investment bank, it's all about how much profit you generate.
0:17:19 > 0:17:21What's the short sterling, quickly?
0:17:21 > 0:17:27The power lies in profit. That is the rule in investment banking.
0:17:27 > 0:17:29That's probably not the rule in retail banking.
0:17:33 > 0:17:37With a housing boom, which saw prices more than double in the '80s,
0:17:37 > 0:17:40came a voracious appetite for consumer goods.
0:17:40 > 0:17:44Credit to pay for them was heavily marketed by banks.
0:17:44 > 0:17:48Don't worry, Money. I've already paid. It's much easier and faster with me.
0:17:48 > 0:17:53And between 1985 and the end of the decade, our personal borrowing
0:17:53 > 0:17:55doubled, reaching more than £30 billion a year.
0:17:57 > 0:17:58Here we come!
0:18:01 > 0:18:04Prior to the Thatcher revolution, it was considered in Britain
0:18:04 > 0:18:10not quite the thing to go after wealth and go after money.
0:18:12 > 0:18:16During the late '70s and '80s we became a nation of home owners.
0:18:19 > 0:18:22You work hard, you play hard, and you enjoy the rewards.
0:18:24 > 0:18:30In a credit boom, money becomes very cheap and very easily available.
0:18:30 > 0:18:35So someone on a 20 grand salary will get credit via credit cards
0:18:35 > 0:18:38of £15,000, £20,000.
0:18:38 > 0:18:41That is clearly what happened in the boom times.
0:18:41 > 0:18:45Massive mortgages, massive houses, because money is so cheap.
0:18:48 > 0:18:52Bumbling Captain Mainwaring had become a city slicker
0:18:52 > 0:18:54chasing profits and a bonus.
0:18:54 > 0:18:5650 million to Lennox.
0:18:57 > 0:19:01Now success was defined by shareholder value -
0:19:01 > 0:19:03increasing the bank's share price.
0:19:05 > 0:19:10The shareholders were putting tremendous pressure on the banks.
0:19:10 > 0:19:13They wanted the returns with the stock price,
0:19:13 > 0:19:15they wanted high dividend payouts...
0:19:15 > 0:19:17OK, let's go, let's clean this position out.
0:19:17 > 0:19:21..and then that drove a lot of the management to think about
0:19:21 > 0:19:23focusing on other areas of the business
0:19:23 > 0:19:26where they could get high returns quite quickly,
0:19:26 > 0:19:31and sometimes that was to the detriment of the customers.
0:19:31 > 0:19:33Previously, the first question that a banker would ask was
0:19:33 > 0:19:38what products and services does my customer require?
0:19:38 > 0:19:41After the shareholder value revolution, the first question
0:19:41 > 0:19:44that a banker asked was what profit can we make
0:19:44 > 0:19:50to satisfy the shareholders, and what can we do to and with our customers
0:19:50 > 0:19:52to achieve that profit level?
0:19:55 > 0:19:58No-one caught the go-getting bug more than bankers.
0:19:59 > 0:20:01The more money they made for shareholders,
0:20:01 > 0:20:03the more they would earn for themselves.
0:20:07 > 0:20:09There were certain individuals who really stood out
0:20:09 > 0:20:13at being able to deliver results that were higher
0:20:13 > 0:20:16than the rest of the bankers in the industry,
0:20:16 > 0:20:18and they became known as the rainmakers.
0:20:18 > 0:20:22So there was this huge pressure to find rainmakers,
0:20:22 > 0:20:24and that bid the price of these rainmakers up,
0:20:24 > 0:20:26because a lot of banks wanted to hire them.
0:20:30 > 0:20:33But it wasn't just City high-flyers who were paid on results.
0:20:35 > 0:20:39Peter McNamara was a key member of the Lloyds Bank executive team
0:20:39 > 0:20:45which introduced performance related pay for all 40,000 staff in 1993.
0:20:47 > 0:20:50More senior people were awarded shares.
0:20:50 > 0:20:55If the rank and file met targets, they got modest cash bonuses.
0:20:55 > 0:20:58Fine in principle, but in practice,
0:20:58 > 0:21:02the industry let bonuses get out of hand.
0:21:02 > 0:21:06Bonuses shouldn't have been more than 10% or so of their basic salary...
0:21:07 > 0:21:11..and that worked adequately, without being too dangerous.
0:21:11 > 0:21:14As soon as those cash payments started exceeding that
0:21:14 > 0:21:18in other banks, I think you started seeing some of the problems being created.
0:21:20 > 0:21:24The pressure came on too much to sell things irrespective
0:21:24 > 0:21:27of whether they were right, or indeed, what was being sold.
0:21:30 > 0:21:33There's nothing wrong with performance related pay, as such.
0:21:35 > 0:21:37But, in essence, you get what you pay for,
0:21:37 > 0:21:42so if you incent people to drive volume at any cost,
0:21:42 > 0:21:45that is a high-risk strategy, because the danger, of course,
0:21:45 > 0:21:49is that they sell products to people who don't really need them.
0:21:54 > 0:21:58In Bournemouth, the Fletts believe it was exactly that kind of
0:21:58 > 0:22:01incentivised selling which has caused them so much trouble.
0:22:03 > 0:22:07After they bought the Hotel Piccadilly in late 2006,
0:22:07 > 0:22:11their bank urged them to take out an interest rate swap to hedge,
0:22:11 > 0:22:14or insure, against a rise in the mortgage rate.
0:22:16 > 0:22:20He brought with him about six pages of presentation.
0:22:20 > 0:22:22We did look at the presentation. I have to say
0:22:22 > 0:22:26I didn't really understand it, and I went missing for half the meeting
0:22:26 > 0:22:29because the fire officer was here and I went to see him.
0:22:29 > 0:22:32And then came back on that meeting and just said,
0:22:32 > 0:22:35"We really can't cope with this right now."
0:22:37 > 0:22:40But people at the bank weren't going to give up.
0:22:42 > 0:22:45Phone calls trying to persuade them to take out the swap
0:22:45 > 0:22:47went on day and night.
0:22:47 > 0:22:52I had them, Stewart had them, sometimes the phone calls were
0:22:52 > 0:22:53in the evening, eight o'clock at night.
0:22:53 > 0:22:57We got phone calls at home on our private phone,
0:22:57 > 0:23:01our phone number at home and on our mobiles individually.
0:23:01 > 0:23:05We did keep saying we really didn't want to down this route.
0:23:05 > 0:23:08We still didn't really understand it.
0:23:08 > 0:23:13This went on from mid-February until June.
0:23:13 > 0:23:18And I came home one night about nine o'clock on a Friday,
0:23:18 > 0:23:21and Stewart said, "I've got a feeling I've done the wrong thing here,
0:23:21 > 0:23:24"because I've just said on the phone that we'll go ahead
0:23:24 > 0:23:25"with that policy."
0:23:27 > 0:23:32I was anxious because I felt, deep down, that I would regret it,
0:23:32 > 0:23:35but I said, "Well, I've done it now, and at least we're protected
0:23:35 > 0:23:37"against the interest going up."
0:23:39 > 0:23:43But following the crash, the Bank of England cut interest rates
0:23:43 > 0:23:46in an attempt to revive the economy.
0:23:47 > 0:23:51This meant the Fletts had to start paying the bank for their swap -
0:23:51 > 0:23:53around £6,000 a month.
0:23:54 > 0:23:56The bank said they couldn't back out,
0:23:56 > 0:23:59because the phone call was a binding contract.
0:24:00 > 0:24:02I did bitterly regret it.
0:24:02 > 0:24:04I've lived with that for five years,
0:24:04 > 0:24:09with that regret costing us thousands and thousands of pounds.
0:24:14 > 0:24:18Performance related pay was helping banking become more profitable,
0:24:18 > 0:24:20but it also got out of control.
0:24:22 > 0:24:26And there was another way the banks evolved which would contribute
0:24:26 > 0:24:27to the turmoil they're in today -
0:24:29 > 0:24:33..the move from local, face-to-face branch banking
0:24:33 > 0:24:37to centralized, automated services on an industrial scale.
0:24:42 > 0:24:45Hi. Did you get my call the other night?
0:24:45 > 0:24:48In the 1990s, banks were brimming with confidence.
0:24:48 > 0:24:50They spent heavily on glossy marketing,
0:24:50 > 0:24:55and spent even more on a frenzy of takeovers and mergers.
0:24:55 > 0:24:57'A merger between Lloyds Bank and the TSB
0:24:57 > 0:25:00'could create the biggest bank in Britain, with 15 million customers.'
0:25:00 > 0:25:04'Barclays Bank has agreed takeover terms with the Woolwich,
0:25:04 > 0:25:06'in a deal worth more than £5 billion.'
0:25:06 > 0:25:09'Lloyds TSB says it wants to take over the Abbey National...'
0:25:09 > 0:25:12'..in a deal worth £19 billion.'
0:25:12 > 0:25:14'The other banks shares also went up,
0:25:14 > 0:25:18'as investors tried to guess who might be the next takeover target.'
0:25:18 > 0:25:24If you go back to the 1970s, then you had banks, building societies,
0:25:24 > 0:25:28insurance companies, investment or merchant banks,
0:25:28 > 0:25:31which were all performed by different businesses.
0:25:31 > 0:25:35What we got were integrated financial conglomerates
0:25:35 > 0:25:37that performed all of these things.
0:25:39 > 0:25:43Banks began to move operations away from high streets
0:25:43 > 0:25:46to out-of-town locations, like this.
0:25:46 > 0:25:48You're looking at potentially transferring some funds
0:25:48 > 0:25:51from one account to another.
0:25:51 > 0:25:53Between the mid-nineties and 2010,
0:25:53 > 0:25:56the number of branches fell by a third.
0:25:56 > 0:26:00I can see that there was a total of £19.12 deducted.
0:26:01 > 0:26:04The idea was to cut costs and improve service.
0:26:06 > 0:26:08And as competition intensified,
0:26:08 > 0:26:10bankers offered perks to account holders.
0:26:12 > 0:26:15Deregulation had already delivered for shareholders.
0:26:15 > 0:26:18Now it was the turn for customers and country.
0:26:19 > 0:26:23You got things like free banking, that was seen as a great asset,
0:26:23 > 0:26:26a boon to the consumer from this deregulation.
0:26:26 > 0:26:29The mortgage market, which used to be quite hard
0:26:29 > 0:26:33for people to get into, that became much more competitive.
0:26:33 > 0:26:37So you can see why lots of people, including the politicians, thought,
0:26:37 > 0:26:38"This deregulation is great."
0:26:38 > 0:26:41"It's great for consumers, they're getting a better deal,
0:26:41 > 0:26:43"they're getting better choice, and at the same time,
0:26:43 > 0:26:46"these institutions are making lots of lovely money, some of which
0:26:46 > 0:26:50"we can tax to spend on things we governments would like to spend on."
0:26:53 > 0:26:56Banks vied to offer innovation and automation.
0:26:58 > 0:27:02Bank and financial services has become a lot more customer-friendly,
0:27:02 > 0:27:06and particularly with the introduction of technology.
0:27:06 > 0:27:09This machine - it's called an Automatic Bank Teller -
0:27:09 > 0:27:12offers self-service banking 24 hours a day.
0:27:12 > 0:27:16Cash machines, credit cards, debit cards.
0:27:16 > 0:27:19- MACHINE:- Please insert your card.
0:27:19 > 0:27:22I have an internet account, a telephone bank account,
0:27:22 > 0:27:26because, you know, as a working woman, getting to a bank
0:27:26 > 0:27:30between the hours of nine and three is plainly ridiculous.
0:27:30 > 0:27:34Everything's closed round here, including the bank.
0:27:34 > 0:27:39But I'm still all right, because this is an automatic cash dispenser.
0:27:41 > 0:27:44Cashpoints, or ATMs, were first unveiled in Britain
0:27:44 > 0:27:46way back in 1967.
0:27:51 > 0:27:55It was hoped they'd cut costs and prove convenient for customers.
0:27:56 > 0:27:58Hey, presto! The computer's done its sums,
0:27:58 > 0:28:00and has come up with a couple of crisp fivers.
0:28:04 > 0:28:08In the heart of rural Wales, Peter McNamara these days
0:28:08 > 0:28:12runs a company that operates and installs ATMs.
0:28:14 > 0:28:17Now, there are about 66,000 in the country.
0:28:19 > 0:28:24But when he became a senior Lloyds Bank executive in 1990,
0:28:24 > 0:28:25there were only 17,000.
0:28:27 > 0:28:30The idea of ATMs was to free up time so that customers could have
0:28:30 > 0:28:33better advice, quality of service,
0:28:33 > 0:28:36from the people inside the banking branch.
0:28:36 > 0:28:39That was much of the theory as to why ATMs were deployed.
0:28:42 > 0:28:46These new "holes in the wall" were popular and convenient.
0:28:48 > 0:28:52But like many technological advances that followed,
0:28:52 > 0:28:56instead of improving relationships between banks and their customers,
0:28:56 > 0:28:59ATMs did the reverse.
0:28:59 > 0:29:02The great amusement was that people would queue outside in the rain
0:29:02 > 0:29:04to use a cashpoint machine, rather than going in
0:29:04 > 0:29:08and face a person in a till whom you could have talked to,
0:29:08 > 0:29:11so you felt more comfortable with a robot ATM device,
0:29:11 > 0:29:13than you did with an individual.
0:29:13 > 0:29:16All that sort of thing reduced the number of people
0:29:16 > 0:29:21in banking branches, and over time, reduced their knowledge of customers,
0:29:21 > 0:29:23because, if you don't see the customer on a regular basis,
0:29:23 > 0:29:24you don't really know them.
0:29:24 > 0:29:28The big change that occurred right across the financial system,
0:29:28 > 0:29:32including in retail banking, was a shift away from the culture
0:29:32 > 0:29:35that was based on relationships,
0:29:35 > 0:29:38to one that was based on transactions and trading.
0:29:43 > 0:29:47The modern banking revolution had weakened the relationship
0:29:47 > 0:29:50between these giant institutions and their customers...
0:29:52 > 0:29:55..and with incentivised pay in the mix, it would only take
0:29:55 > 0:29:59one more factor to unleash an unprecedented mis-selling scandal.
0:30:01 > 0:30:03Banks became sales machines.
0:30:07 > 0:30:10By the 1990s, nine out of ten adults had accounts,
0:30:10 > 0:30:13getting on for double the number of a generation earlier.
0:30:13 > 0:30:15It was the perfect sales opportunity
0:30:15 > 0:30:20for the cornucopia of financial products the banks could now offer.
0:30:20 > 0:30:21Asset management.
0:30:21 > 0:30:24A Lloyds Bank personal loan.
0:30:24 > 0:30:25Life insurance.
0:30:25 > 0:30:29Unit trust saving, how very modern! There's more!
0:30:29 > 0:30:31As people became more prosperous,
0:30:31 > 0:30:34their financial affairs became more interesting to banks.
0:30:34 > 0:30:35I've done rather well out of it.
0:30:35 > 0:30:39And, suddenly, the consumer became an interesting customer
0:30:39 > 0:30:42in his or her own right for financial products.
0:30:42 > 0:30:45This is what you pay as a first-time buyer.
0:30:45 > 0:30:49Really, if you had the core relationship of a current account
0:30:49 > 0:30:52customer, your chances of selling them another product,
0:30:52 > 0:30:56a mortgage, a personal loan, a general insurance product,
0:30:56 > 0:30:58a pension, were all very good.
0:31:03 > 0:31:07A massive sales drive was now needed to bring in the profits,
0:31:07 > 0:31:11because fierce competition between the banks meant they were making
0:31:11 > 0:31:15less from basic services, like savings and loans.
0:31:15 > 0:31:19The price war in the mortgage market intensified today, after the Halifax
0:31:19 > 0:31:23announced it was cutting its main lending rate by 0.75%.
0:31:23 > 0:31:26And for customers who stayed in credit,
0:31:26 > 0:31:30current accounts were free, but costly for banks to administer.
0:31:31 > 0:31:34People have come - and this is a problem for the banks -
0:31:34 > 0:31:37people have come to resent paying for banking services.
0:31:37 > 0:31:40Basic money transmissions the banks were no longer charging for.
0:31:40 > 0:31:42Interest rates were coming down,
0:31:42 > 0:31:44it was getting harder and harder to make money there.
0:31:44 > 0:31:47In many cases, they'd compete very hard on the underlying products.
0:31:47 > 0:31:50They'd compete hard on mortgage rates or loan rates,
0:31:50 > 0:31:53but at a level where they probably weren't profitable for the bank,
0:31:53 > 0:31:56and they only became profitable by forcing somebody
0:31:56 > 0:31:57to take another product as well.
0:32:02 > 0:32:04By the early 2000s, on top of mortgages,
0:32:04 > 0:32:08we were borrowing £80bn a year from the major banks,
0:32:08 > 0:32:11almost double the amount of five years before.
0:32:14 > 0:32:19The bankers were adopting the tactics of high street retailers,
0:32:19 > 0:32:24rebranding branches as shops, offering extra treats...
0:32:25 > 0:32:28..and even poaching department store sales staff.
0:32:30 > 0:32:31People like Abigail Rowland.
0:32:33 > 0:32:35When I applied for the job at the bank,
0:32:35 > 0:32:39they were very interested with my retail experience...
0:32:39 > 0:32:41..and they were also very happy
0:32:41 > 0:32:44that I'd got such a strong customer service background.
0:32:53 > 0:32:57Days out go-karting were just one of her perks
0:32:57 > 0:32:58for selling financial products.
0:33:01 > 0:33:02At all the big banks,
0:33:02 > 0:33:06there were generous bonuses to reward staff who met sales targets.
0:33:08 > 0:33:11It was a booming business.
0:33:11 > 0:33:13We were making the company a lot of money,
0:33:13 > 0:33:15and we were rewarded really, really well.
0:33:16 > 0:33:19If your team won an award for being one of the best sales teams,
0:33:19 > 0:33:22then you might all get to go out on a jolly day,
0:33:22 > 0:33:23and that was in work's time.
0:33:23 > 0:33:27They might take you to Alton Towers or go-karting.
0:33:27 > 0:33:31There were lots of things like gift vouchers, and you could have £100 worth of gift vouchers,
0:33:31 > 0:33:35but I won a trip to Las Vegas for five days, all expenses paid,
0:33:35 > 0:33:37so that was just a treat.
0:33:39 > 0:33:43Her job was selling insurance to people applying for credit cards.
0:33:44 > 0:33:47The better she performed, the greater the rewards.
0:33:48 > 0:33:51Every time a customer was issued a card,
0:33:51 > 0:33:54they had to contact her team before they could use it.
0:33:55 > 0:33:58And that was a sales opportunity,
0:33:58 > 0:34:01but customers didn't necessarily realise.
0:34:01 > 0:34:06When people phoned in, we wouldn't say that we are a sales team,
0:34:06 > 0:34:08because I think, in essence,
0:34:08 > 0:34:11that would have made people a little bit...
0:34:11 > 0:34:13..potentially a little bit prickly,
0:34:13 > 0:34:15and less receptive to being sold a product.
0:34:16 > 0:34:20I think the reality is that customers often don't know
0:34:20 > 0:34:22when they're being sold to.
0:34:22 > 0:34:25They often think that the person in the branch
0:34:25 > 0:34:27or the person at the end of the phone is on their side.
0:34:27 > 0:34:30I think one of the sad things about the crisis has been
0:34:30 > 0:34:33it has shown the extent to which the person behind the till
0:34:33 > 0:34:35has not always been on their side,
0:34:35 > 0:34:38but has been incentivised to sell them something different.
0:34:38 > 0:34:42In 2000, there were close to 50 million credit cards
0:34:42 > 0:34:46issued in Britain, double the number of five years earlier.
0:34:46 > 0:34:49And every credit card, or loan application,
0:34:49 > 0:34:53was a chance for banks to sell another profitable product.
0:34:53 > 0:34:56People were so enthusiastic about having this credit,
0:34:56 > 0:34:58that they were very willing to take on extras,
0:34:58 > 0:35:00and they almost seemed happy.
0:35:00 > 0:35:03We'd read out the long disclosure that we had to read to them.
0:35:03 > 0:35:06I'd think, "Are they absolutely understanding
0:35:06 > 0:35:08"what I'm saying to them?"
0:35:08 > 0:35:10But some people seemed overjoyed to have it.
0:35:13 > 0:35:17The product she, and thousands like her, were selling
0:35:17 > 0:35:20was called Payment Protection Insurance or PPI.
0:35:22 > 0:35:24Like so many developments in banking,
0:35:24 > 0:35:27it was a sound proposition, in principle.
0:35:29 > 0:35:31The product, initially, was quite a sensible one.
0:35:31 > 0:35:33It gave people insurance cover if they lost their job
0:35:33 > 0:35:36and weren't able to repay their personal lending.
0:35:36 > 0:35:40And providing it was sold to people for whom this was relevant,
0:35:40 > 0:35:42and for whom the terms and conditions were right,
0:35:42 > 0:35:46it was a fine product, really, and a sensible one.
0:35:49 > 0:35:53PPI became a phenomenal money-spinner for financial services,
0:35:53 > 0:35:56and banks took the lion's share.
0:35:56 > 0:36:02In 1998, PPI was bringing in an estimated £1.8 billion worth of premiums.
0:36:02 > 0:36:06In 2005, it was £5.5 billion,
0:36:06 > 0:36:11accounting for about a third of some retail banks' total profits.
0:36:11 > 0:36:14In the zeal to increase sales,
0:36:14 > 0:36:17millions of PPI policies were mis-sold.
0:36:22 > 0:36:25One of the problems with selling financial products
0:36:25 > 0:36:26to retail customers...
0:36:28 > 0:36:31..is the bank knows so much more about these products
0:36:31 > 0:36:33than its customers do.
0:36:33 > 0:36:37And yet, the bank is not constrained
0:36:37 > 0:36:40under our present legislation, and the way that things work,
0:36:40 > 0:36:43the bank is not constrained by duty of care for the customers.
0:36:43 > 0:36:47It doesn't have to think genuinely what is right for the customer.
0:36:47 > 0:36:50There were certain exclusions which were never explained to people,
0:36:50 > 0:36:53so it wasn't useful for people who were self-employed,
0:36:53 > 0:36:55it didn't cover a pre-existing medical condition
0:36:55 > 0:36:58like a back condition, but that was never explained to people,
0:36:58 > 0:37:00so people would come to try and use the cover,
0:37:00 > 0:37:03and find that actually they weren't covered in the first place.
0:37:03 > 0:37:05In some cases, and this was the worst,
0:37:05 > 0:37:08it was simply added on automatically to somebody's loan,
0:37:08 > 0:37:11and in some cases, they were they were just not aware that they'd bought the product,
0:37:11 > 0:37:13yet they now had a much bigger loan to pay back
0:37:13 > 0:37:16because it had simply been added on.
0:37:16 > 0:37:19I think PPI was a shocking, shocking episode.
0:37:19 > 0:37:22All banks were involved, one way or another, of any consequence.
0:37:22 > 0:37:25They were all involved, over a long period of time
0:37:25 > 0:37:27in selling products very inappropriately
0:37:27 > 0:37:29to large parts of their customer base.
0:37:29 > 0:37:31I think there's very little that you can say to defend it.
0:37:31 > 0:37:34For a large number of customers, it was a rip off.
0:37:41 > 0:37:46When he worked as a salesman for a bank, James Ducker used to go
0:37:46 > 0:37:48to the horse races to spend some of his commission.
0:37:52 > 0:37:55I would have an annual target, my team would have an annual target,
0:37:55 > 0:37:57the area would have an annual target, etc, etc.
0:37:57 > 0:38:00And the aim was to exceed it as much as possible.
0:38:00 > 0:38:03And we knew that if we hit our annual target,
0:38:03 > 0:38:06and then the area hit theirs, etc, that the bonus pot would get bigger
0:38:06 > 0:38:09and bigger, and we would get a better and better share of it.
0:38:12 > 0:38:15He sold interest rate swaps,
0:38:15 > 0:38:18a kind of complex insurance for businesses taking out loans.
0:38:20 > 0:38:23Like PPI, they had a useful function, in theory.
0:38:26 > 0:38:28But he thinks it was the banks that had most to gain.
0:38:30 > 0:38:32Customers were viewed as a wallet.
0:38:32 > 0:38:34So, "We want a bigger share of their wallet",
0:38:34 > 0:38:36was this phrase that's still used today.
0:38:36 > 0:38:38Hello, mate. Tenner to win on Al Gharra, please.
0:38:38 > 0:38:41- £10 win on number four. - That's the one.
0:38:41 > 0:38:43- Thanks a lot. Good luck to you. - Cheers.
0:38:43 > 0:38:45The customers are there to make money out of.
0:38:45 > 0:38:50They're not there to be as concerned as you should be about them.
0:38:50 > 0:38:52And once the deal's done, you don't speak to that customer again
0:38:52 > 0:38:54for a year, two years or even more.
0:38:56 > 0:39:00The products he sold were designed for sizeable companies.
0:39:02 > 0:39:04But he was expected to grow the market...
0:39:06 > 0:39:09..finding smaller and smaller businesses to sell to.
0:39:10 > 0:39:12Salesmen would be in the pub,
0:39:12 > 0:39:15high-fiving each other about how much money they'd make.
0:39:15 > 0:39:17As awful as it sounds now,
0:39:17 > 0:39:20there was a discussion of how much they'd raped the clients.
0:39:20 > 0:39:22That was a common phrase.
0:39:24 > 0:39:27Last year, the financial regulator carried out
0:39:27 > 0:39:29a preliminary investigation of swap sales,
0:39:29 > 0:39:33and found 90% broke its rules.
0:39:33 > 0:39:36Many customers could be entitled to compensation,
0:39:36 > 0:39:41as 40,000 swaps have been sold since 2001.
0:39:41 > 0:39:45Banks' aggressive sales culture had turned toxic.
0:39:45 > 0:39:49I didn't like it, that sounds rather pathetic.
0:39:49 > 0:39:51But no, it hurts, morally.
0:39:53 > 0:39:54I would go home and be unhappy,
0:39:54 > 0:39:57and talk to my family and wife about what I can possibly do differently,
0:39:57 > 0:40:00but once you're trained into an area of specialism
0:40:00 > 0:40:02and particularly such a small area,
0:40:02 > 0:40:04there is very little you can do about it.
0:40:11 > 0:40:13The culture became so strong,
0:40:13 > 0:40:16that I think that if I'd been in that environment,
0:40:16 > 0:40:22I'm not sure I would have asked the hard, personal questions myself.
0:40:22 > 0:40:27So I'm being rather careful about throwing rocks when I suspect
0:40:27 > 0:40:34that I might have been as unthinking as other people.
0:40:34 > 0:40:37Because the culture was absolutely, incredibly powerful.
0:40:42 > 0:40:45In the early 2000s, despite complaints about sales culture
0:40:45 > 0:40:48and PPI from consumer organisations,
0:40:48 > 0:40:52there was little criticism of the banks from politicians.
0:40:55 > 0:40:58Because, thanks in part to profits from mis-selling,
0:40:58 > 0:41:00financial services were booming.
0:41:03 > 0:41:07By 2005, they were contributing £88bn to Britain's economy,
0:41:07 > 0:41:10more than double the amount of a decade earlier.
0:41:10 > 0:41:13Politicians of all parties were duly grateful.
0:41:15 > 0:41:18Can I start by congratulating all of you here tonight
0:41:18 > 0:41:22for the outstanding - indeed, the invaluable contribution
0:41:22 > 0:41:25that you and your companies make to the prosperity of our country.
0:41:25 > 0:41:28Year after year, Gordon Brown would go to make the Chancellor's
0:41:28 > 0:41:32big annual speech at the Mansion House in the City,
0:41:32 > 0:41:37and basically hose the assembled oligarchs of finance
0:41:37 > 0:41:40with sycophantic flattery.
0:41:40 > 0:41:43What you have achieved in the financial services sector,
0:41:43 > 0:41:46we as a country should aspire to achieve
0:41:46 > 0:41:48for the whole of the British economy.
0:41:48 > 0:41:50Now, any government at any time,
0:41:50 > 0:41:53when confronted with an employer that employs a million people
0:41:53 > 0:41:57and contributes 10% of its GDP, of course it takes notice of it,
0:41:57 > 0:42:00it doesn't matter what sector it's in, it is very, very important.
0:42:04 > 0:42:08The tax revenues generated by banking and financial services
0:42:08 > 0:42:12helped fund new hospitals, schools and a lot more besides.
0:42:13 > 0:42:17The banks had reached the zenith of their power and influence.
0:42:17 > 0:42:20The days of Captain Mainwaring were now just a memory.
0:42:22 > 0:42:25So embedded did we have this idea
0:42:25 > 0:42:29that bankers were these titans of the universe,
0:42:29 > 0:42:32these brilliant minds who could come up with all sorts of solutions,
0:42:32 > 0:42:35that under Labour, particularly, it has to be said,
0:42:35 > 0:42:37they were given lots of knighthoods,
0:42:37 > 0:42:39they were put on government task forces.
0:42:39 > 0:42:41A banker was asked to review
0:42:41 > 0:42:43the future of the National Health Service.
0:42:45 > 0:42:47All this euphoria about bankers
0:42:47 > 0:42:50drowned out a growing chorus of complaint about PPI.
0:42:53 > 0:42:58According to one report in 2005, as people began to claim
0:42:58 > 0:43:01on their policies, 85% of them were turned down.
0:43:02 > 0:43:06'Payment protection insurance has been heavily criticised
0:43:06 > 0:43:09'by the charity Citizens' Advice.'
0:43:09 > 0:43:12'..many people are being overcharged and policies are often mis-sold.'
0:43:12 > 0:43:16'..is often deliberately designed to exclude
0:43:16 > 0:43:19'some of the most common causes of debt problems.'
0:43:19 > 0:43:22'The Financial Services Authority has told us that it's on the case,
0:43:22 > 0:43:26'and they intend to take action if the banks don't clean up their acts.'
0:43:28 > 0:43:32But despite the complaints, the Financial Services Authority,
0:43:32 > 0:43:35the body responsible for regulating the banks,
0:43:35 > 0:43:38was slow off the mark in dealing with PPI mis-selling.
0:43:40 > 0:43:44It wasn't until 2005 that the FSA picked up responsibility
0:43:44 > 0:43:47for general insurance which included PPI, and then, frankly,
0:43:47 > 0:43:49it still took another six years, which is too long,
0:43:49 > 0:43:51for the real intervention to happen.
0:43:52 > 0:43:57Yes, we should, at an earlier stage, have said, "Here is a product
0:43:57 > 0:44:00"which is accounting for a very large proportion
0:44:00 > 0:44:04"of the total profitability of the retail banks."
0:44:04 > 0:44:07"Can that possibly be in the interest of everybody
0:44:07 > 0:44:08"to whom they are selling it?"
0:44:08 > 0:44:11And we weren't doing enough analysis of that,
0:44:11 > 0:44:14but we also just did not have the confidence
0:44:14 > 0:44:16that it was our role,
0:44:16 > 0:44:19or that government or parliament would back us,
0:44:19 > 0:44:23in the role of aggressively challenging the industry
0:44:23 > 0:44:24on those issues.
0:44:26 > 0:44:29There would have been no political support
0:44:29 > 0:44:32for a regulator who did that.
0:44:34 > 0:44:37You would have been taking away products that people
0:44:37 > 0:44:43appeared to want, and you would have been hitting at an industry
0:44:43 > 0:44:47and very well-paid people who were very strongly politically connected.
0:44:50 > 0:44:53But the balance of power was about to shift.
0:44:59 > 0:45:02On September 15th 2008,
0:45:02 > 0:45:06when panic swept through the City as Lehman Brothers went bust,
0:45:06 > 0:45:09a golden decade of growth came to a shuddering halt.
0:45:09 > 0:45:12SHOUTING
0:45:12 > 0:45:15In the days that followed, the entire banking system
0:45:15 > 0:45:19was on the point of collapse, as lending between banks dried up.
0:45:20 > 0:45:24Only a colossal government bailout could prevent catastrophe.
0:45:25 > 0:45:28The Government does not want to run Britain's banks,
0:45:28 > 0:45:29it wants to rebuild them.
0:45:29 > 0:45:33The long term future of UK banks lies in the private sector.
0:45:34 > 0:45:38But our objective today is to stabilise and rebuild,
0:45:38 > 0:45:41and we will maintain our stake for as long as it takes to do that.
0:45:43 > 0:45:48The bankers' track record for financial mastery was destroyed,
0:45:48 > 0:45:51but they pointed to global forces beyond their control.
0:45:53 > 0:45:56When the astonishing scale of mis-selling emerged,
0:45:56 > 0:45:59there was no-one to blame but themselves.
0:46:05 > 0:46:08In Bournemouth, the music plays on,
0:46:08 > 0:46:10but the Hotel Piccadilly is struggling.
0:46:14 > 0:46:20It varies between £5,500 and up to about £7,900 a month
0:46:20 > 0:46:21it's costing us.
0:46:21 > 0:46:22My goodness!
0:46:22 > 0:46:25The Fletts are counting the cost of the financial product
0:46:25 > 0:46:28they'd been persuaded to take by their bank.
0:46:28 > 0:46:36That's exactly four years, it's cost us £322,987.31.
0:46:36 > 0:46:39322,000?
0:46:39 > 0:46:42Which we wouldn't have had to pay if we hadn't - I hadn't -
0:46:42 > 0:46:44have signed that agreement.
0:46:44 > 0:46:47This is a really big reality check.
0:46:48 > 0:46:52They can't afford the payments on their interest rate swap.
0:46:52 > 0:46:55But they can't afford to cancel the agreement either.
0:46:56 > 0:47:00We asked how much it would cost to come out of this policy,
0:47:00 > 0:47:03and we were told it was £38,000 to come out.
0:47:03 > 0:47:07Each time, it goes up and up and up.
0:47:07 > 0:47:11The more we pay, the more the break clause is to get out of it.
0:47:11 > 0:47:16Six months ago or so it was £346,000 to get out of it,
0:47:16 > 0:47:19and I'm scared to ask how much it is now.
0:47:20 > 0:47:22Like so many others, they're in despair.
0:47:25 > 0:47:29It's really sad, we've been here for six years, it's a dream.
0:47:31 > 0:47:33Stewart and I have weathered through it.
0:47:33 > 0:47:35It's been really tough, sometimes.
0:47:36 > 0:47:39The staff don't really know how I feel about it,
0:47:39 > 0:47:40I've tried to be bright...
0:47:42 > 0:47:46..but we're going to lose everything, and it's really just not fair
0:47:46 > 0:47:49of the banks to make us go bust at this stage.
0:47:52 > 0:47:56With billions of pounds of state money spent propping up the banks
0:47:56 > 0:48:00after the crash, public and political patience
0:48:00 > 0:48:01has finally run out.
0:48:04 > 0:48:09We had a succession of serious scandals, which, taken together,
0:48:09 > 0:48:12fundamentally changed the way that we perceive banks,
0:48:12 > 0:48:17and led us to the conclusion that there really is something wrong
0:48:17 > 0:48:19in the culture of these institutions.
0:48:19 > 0:48:21People talk about the financial services industry
0:48:21 > 0:48:23as the golden goose.
0:48:23 > 0:48:24Well, if it's a golden goose,
0:48:24 > 0:48:26it's smelling pretty rank at the moment.
0:48:29 > 0:48:33And even those who helped begin the transformation of our banks
0:48:33 > 0:48:36into a vibrant industry now believe banking culture
0:48:36 > 0:48:39went badly wrong along the way.
0:48:39 > 0:48:43The mis-selling scandals are absolutely appalling,
0:48:43 > 0:48:51and what they point to is a serious cultural defect among bankers.
0:48:51 > 0:48:55I mean, people should not behave like that.
0:48:55 > 0:48:58Looking back, Lord Parkinson, do you think that the process went too far?
0:49:00 > 0:49:03Well, I think, with the benefit of hindsight, it did.
0:49:03 > 0:49:07And I'm quite sure a lot of members of the boards of our banks
0:49:07 > 0:49:10would have been totally bewildered
0:49:10 > 0:49:12if they'd known the range of activities
0:49:12 > 0:49:14that were being carried on in their name.
0:49:16 > 0:49:18# But, God, I loved it
0:49:18 > 0:49:22# Making a profit From somebody's loss
0:49:24 > 0:49:30# I never knew exactly Whose money it was
0:49:30 > 0:49:32# And I did not care... #
0:49:32 > 0:49:35Our perception of bankers has changed,
0:49:35 > 0:49:38from misplaced nostalgia for Captain Mainwaring,
0:49:38 > 0:49:42via adulation for so-called masters of the universe...
0:49:42 > 0:49:44So, what happened with your 20 million buyer?
0:49:44 > 0:49:47..to today's anger and contempt.
0:49:47 > 0:49:49# ..the good old days
0:49:49 > 0:49:53# When I was free And the complete banker
0:49:53 > 0:49:57# I'm a conscience-free Malignant cancer on society. #
0:50:06 > 0:50:09Finally the bankers have been called to account.
0:50:12 > 0:50:16To deal with millions of complaints about misselling, they've had
0:50:16 > 0:50:21to employ 12,000 extra staff in huge centres like this one in Manchester.
0:50:23 > 0:50:28Some think the eventual bill for paying back mis-sold PPI policies alone
0:50:28 > 0:50:32could reach £25 billion -
0:50:32 > 0:50:38enough to give every man, woman and child in Britain a cheque for £420.
0:50:41 > 0:50:44Bank bosses have been hauled before the parliamentary
0:50:44 > 0:50:46commission on banking standards.
0:50:46 > 0:50:52Libor, PPI, interest rate swaps, it doesn't matter what the
0:50:52 > 0:50:58scandal is, you seem to have a finger in every one of those pies.
0:50:58 > 0:51:01This huge bonus culture is something that has grown up since the '80s.
0:51:01 > 0:51:07What this means in plain English is that if you can't get the profit margins to which
0:51:07 > 0:51:10you feel you are entitled by responsible banking,
0:51:10 > 0:51:14you will go in for irresponsible and reckless banking.
0:51:14 > 0:51:18The Commission is recommending a range of reforms,
0:51:18 > 0:51:21and its chairman has reached one conclusion of his own.
0:51:22 > 0:51:26One of the extraordinary aspects of this crisis is even after all
0:51:26 > 0:51:31these scandals and so many stories of the most appalling behaviour,
0:51:31 > 0:51:35rip-offs on a grand scale, rigging of markets,
0:51:35 > 0:51:39there's hardly anybody been seen in an orange jumpsuit
0:51:39 > 0:51:42and I think it's about time we had changes in the law
0:51:42 > 0:51:48to make it clear that what most of us would consider
0:51:48 > 0:51:50fraud and theft are treated as such.
0:51:55 > 0:51:58So can we ever trust the bankers again?
0:51:58 > 0:52:02Since the overwhelming scale of the mis-selling scandal emerged,
0:52:02 > 0:52:08a new generation of bosses has taken the hot seat at big banks' headquarters.
0:52:08 > 0:52:11They say that from now on things will be different.
0:52:13 > 0:52:17In my view, the root causes were an excessive focus on short-term
0:52:17 > 0:52:22profitability without regard to the impact on the customer
0:52:22 > 0:52:25and that has stopped and it can never happen again.
0:52:27 > 0:52:30I think what went wrong with PPI and other products that were
0:52:30 > 0:52:35mis-sold to customers is first, losing customer focus.
0:52:35 > 0:52:38Second you have the design of products,
0:52:38 > 0:52:41products were absolutely in the interest of customers.
0:52:41 > 0:52:45And third, sales incentives went too far.
0:52:45 > 0:52:47And it's the combination of these three factors
0:52:47 > 0:52:50that needs to be changed.
0:52:50 > 0:52:53It's not just about regulation, it's actually behaving in the
0:52:53 > 0:52:55sort of way that the rest of society would expect you to behave.
0:52:55 > 0:52:58And those cultural changes can only come ultimately from the top
0:52:58 > 0:53:02of the banks, from the boards, and chairmen and chief executives.
0:53:08 > 0:53:13The banks say they will hark back to more traditional times and methods.
0:53:13 > 0:53:16Sales incentives are being cut back.
0:53:16 > 0:53:21They want to rebuild personal relationships with customers.
0:53:21 > 0:53:26And they claim they'll stop selling products that people don't need or understand.
0:53:28 > 0:53:34A return, perhaps, to more boring banking, with trust at its core.
0:53:35 > 0:53:40I think boring is good, boring in the sense of dependable,
0:53:40 > 0:53:44trustworthy, customer focus, I think it's very good.
0:53:44 > 0:53:49I do think though that trust and reputation may be lost overnight
0:53:49 > 0:53:52and it is a long process to build and to retain.
0:53:52 > 0:53:55We're not supposed to think of customers as people
0:53:55 > 0:53:57we can simply make money out of.
0:53:57 > 0:54:00We're supposed to think of customers as people who are very important
0:54:00 > 0:54:04to our long term success and we're important to their long term future,
0:54:04 > 0:54:07so that should be the essence of banking.
0:54:09 > 0:54:14Others believe our banks are too big and too powerful and they should be dismantled.
0:54:14 > 0:54:18Banking got far too big for its own boots.
0:54:18 > 0:54:20It thought it ran the whole show.
0:54:20 > 0:54:24I'd like to see many more banks with smaller market shares
0:54:24 > 0:54:28serving customers with particular needs in particular ways.
0:54:28 > 0:54:31A variety, a variety of people out there on the high street that
0:54:31 > 0:54:33I can then choose between.
0:54:33 > 0:54:36I think what we need is a smaller financial services sector
0:54:36 > 0:54:40which is focused on the real needs of the real economy.
0:54:42 > 0:54:45But this change may come at a cost to a system
0:54:45 > 0:54:48that for all its faults gave us free bank accounts,
0:54:48 > 0:54:50a cash machine on every corner,
0:54:50 > 0:54:54and in the good years delivered riches to the nation.
0:54:54 > 0:54:58Are we willing to live with costlier mortgages,
0:54:58 > 0:55:02costlier credit cards, it being much harder to get access to bank loans?
0:55:02 > 0:55:07Is that the price worth paying for a safer financial system?
0:55:07 > 0:55:10What else would the British economy have that can drive growth
0:55:10 > 0:55:13forward in a meaningful way? Because finance has been
0:55:13 > 0:55:17so big that many in many ways it's squeezed out other parts of the British economy.
0:55:21 > 0:55:25Terri and Stewart Flett have more immediate worries.
0:55:25 > 0:55:28They believe they were mis-sold their interest rate swap
0:55:28 > 0:55:31and like thousands of other business owners they're waiting to find out
0:55:31 > 0:55:35whether their claim for compensation will be successful.
0:55:37 > 0:55:40If we don't get our money back there's no way
0:55:40 > 0:55:43we can survive here in this business.
0:55:43 > 0:55:50It's not possible. I don't know anybody who trusts the bank anymore.
0:55:51 > 0:55:55We'll never trust the banks, not for a very, very long time again.
0:56:00 > 0:56:03The Fletts hope reforms to our banks will mean
0:56:03 > 0:56:05others avoid a similar ordeal.
0:56:08 > 0:56:13These massive organisations exist for the common good.
0:56:13 > 0:56:16The banks lost sight of that sense of the common good.
0:56:16 > 0:56:22But there is a chance to reshape the entire architecture of how
0:56:22 > 0:56:27banks are regulated, how they're governed, how they're run,
0:56:27 > 0:56:31and most importantly of all, what values drive them.
0:56:33 > 0:56:38You'd be kidding yourselves if you believe that there won't be another scandal in the future.
0:56:38 > 0:56:41I'm afraid, things being what they are,
0:56:41 > 0:56:43somebody will find something to sell and they'll do it in a way
0:56:43 > 0:56:45that they shouldn't be doing,
0:56:45 > 0:56:47and the regulators will be found wanting.
0:56:47 > 0:56:49I'm afraid that has happened in the past,
0:56:49 > 0:56:51it's going to happen again in the future.
0:56:51 > 0:56:53All we can do is try and make it less likely.
0:56:53 > 0:56:57However banks are finally reformed, what the Fletts
0:56:57 > 0:57:01and many others want from their bankers is something fundamental.
0:57:05 > 0:57:07We need to be able to trust our banks.
0:57:07 > 0:57:09And I do know they've got to make money,
0:57:09 > 0:57:11but they need to be on our side, I think.
0:57:13 > 0:57:19I really feel this country cannot get moving until the banks start
0:57:19 > 0:57:23playing the game and do an honest, decent job for us all.
0:57:42 > 0:57:45How has the banking crisis affected you?
0:57:45 > 0:57:49Get your voice heard and join the debate at the Open University.
0:57:49 > 0:57:57Go to bbc.co.uk/bankers and follow the links to The Open University.
0:58:02 > 0:58:07Subtitles by Red Bee Media Ltd