Payback Time Bankers

Inside this anonymous building,

something extraordinary is taking place.

There's a bank at work here,

with a colossal task never undertaken before.

Not issuing loans.

Not managing savings.

Not preparing statements.

Instead, our banks are handing money out.

Billions and billions of pounds.

In centres like this across the country,

the big banks are employing thousands of staff to compensate

millions of customers who have been mis-sold financial products.

There's very little that you can say to defend it.

For a large number of customers, it was a rip off.

We were too short-term focussed.

I think we were too aggressive, and we were too self-centred.

Over the decades, banks had come to think of their customers as a commodity.

Customers were viewed as a wallet.

So, "we want a bigger share of their wallet",

was this phrase that's still used today.

Five years ago, the banks brought the country to its knees.

Now they are provoking yet more accusations

that they destroy businesses and ruin lives.

We're going to lose everything, and it's really just not fair

of the banks to make us go bust.

There is a real sense that, on almost every front,

banks simply can't be trusted.

This is how the biggest mis-selling scandal in British history has come about.

Banks may have to repay £25 billion,

twice the country's budget for transport and roads.

It's the story of the extraordinary journey our banks took,

as they changed beyond recognition...

This machine is called an automatic bank teller,

for self-service banking 24 hours a day.

..and how millions of us went along for the ride.

If you got in at the beginning, the credit boom will have been

very, very good for you.

It's great for consumers, they're getting a better deal,

they're getting better choice.

Now, five years after the crash, with our financial system

still in turmoil and beset by scandal after scandal,

what do want from our bankers, and can we ever trust them again?

The Hotel Piccadilly is famous for its tea dances,

dancing holidays and dancing courses.

Former dancing teacher Terri Flett and her husband Stewart

were so smitten with this Bournemouth institution,

they just had to have it.

The hotel, for me, was a dream, really.

That's what my wife's always wanted. She wanted her own ballroom.

The hotel sort of came with it.

When they put in their offer six years ago,

the Fletts needed to borrow £1.75 million.

The bank helped us to get a mortgage, so that was all wonderful

and it happened very quickly and very easily.

But their dream became a nightmare.

The bank persuaded them to take an interest rate swap,

a kind of insurance policy to offset any rise in their mortgage rate.

But what the Fletts didn't realise was that if interest rates fell,

they would have to start paying the bank thousands every month.

And after the crash, that's exactly what happened.

It was a disaster, really.

The more the rate went down, the more we paid.

And we were paying about £6,500 a month,

which was a huge amount of money to us, on a new business.

We didn't really understand what we were getting into.

We assumed it would be good for us because the bank told us.

We never dreamt that we would be in this position, you know,

where it was costing us so much money.

The Fletts feel betrayed.

By pressing them to take on this policy,

their banks benefited at their expense.

Nobody told us that it would cost so much.

If I'd have known that our business, our home, our marriage was at risk,

I just wouldn't sign it, and nor would any other small business.

I thought the bank were trying to help us stay in business...

..and it doesn't appear like that now.

The Fletts are not alone.

Tens of thousands of others have been persuaded by their banks

to sign up for interest rate swaps, and many are deeply unhappy.

These are our businesses. Often, they're our homes at risk.

Bully Banks is a pressure group, representing small and medium-sized

business owners protesting against these financial products.

My judgement, and I've been a litigation lawyer for 37 years,

this is one of the worst cases of injustice I have ever seen.

What the banks were doing was quite extraordinary.

They were basically misleading people into buying products

which were unsuitable for their needs

and which carried considerable risks, and which were very expensive,

and from which the banks made quite substantial profits.

These accusations are only the latest in a litany of charges

against Britain's high street banks.

We look back over many, many years,

and we see banks almost constantly mis-selling a range of products

to customers, be it pensions, be it endowments, be it PPI,

be it interest rates swaps, all of those things are endemic

of a culture of mis-selling, where that is rewarded within the bank.

We've calculated, if you add all these mis-selling scandals together

you're at something like £27 billion and counting.

Most colossal amount of cost.

Mis-selling may have been going on for years.

But it's only since the government spent over £130 billion

propping up the banks - way more than we spend

on the NHS each year - that politicians of all parties

have been lining up to rip into the bankers.

They threw traditional relationship banking over the side

and sold useless insurance and dodgy derivatives instead.

Irresponsible behaviour was rewarded.

Failure was bailed out, and the innocent,

people who have nothing whatsoever to do with the banks, suffered.

We need banks that serve the country, not a country that serves its banks.

Yet the scandals keep coming, creating a crisis of trust so deep

that a Parliamentary Commission has been set up to examine

why it all continues going wrong and what can put things right.

You seem to be saying the only way you can motivate them

to any significant extent is with cash.

What happened was that there was a progressive loss of perspective,

spiritually, morally, economically.

"We've got to make more money, we've got to use this huge customer base more effectively."

Lost sight of the fact the huge customer base

is actually a lot of individuals who are pretty vulnerable

when taken one by one.

The mis-selling scandals have created a sense amongst the public

that they can't really trust the banks on anything.

They couldn't trust the banks to be essentially safe and secure

and not collapse, they couldn't trust the banks to be honest

in terms of when they sold products to them, and there is a real sense

that, on almost every front, banks simply can't be trusted.

It's not only the public and politicians

who say banks have failed us again and again.

Finally, even the bankers say they agree.

The relationship between society and the bank industry

has completely broken down.

It's a huge issue for the banks, but it's also a big issue for society.

Banks have to be the cornerstones of the economies

where they do business.

We have to deliver returns for our shareholders,

but we also have to do the right thing for our customers and clients.

I have worked in four different countries where I managed several different banks,

and the trust of UK customers in banks

is the lowest I have seen in the countries I have worked.

This must change.

Restoring trust is not going to be something that happens overnight.

We have to earn that trust back, you know, inch by inch,

and it will be a long process.

Having this continuous, sort of, almost vicious cycle

of bank bashing and scandals and so on, is terrible for banks,

and even more terrible for the country as a whole.

We have to get back into a healthy situation

where banks can be a normal part of the economy again.

To understand the crisis facing our high street banks today,

we need to shine a light on three decades

of radical change in banking.

It was a process that transformed the time-honoured way they did business.

They placed a ruthless pursuit of profit at the heart

of their business model,

and embraced industrialised, automated banking.

And the hard sell became pervasive,

revolutionising Britain's retail banking culture.

MUSIC: "Who Do You Think You Are Kidding, Mr Hitler?" by Jimmy Perry

# Who do you think you are kidding Mr Hitler? #

This is the quintessential banker people say they're yearning for today.

Morning, Pike.

A pillar of the community.

Look here, Walker. This £5 note's a forgery.

We do have this nostalgia for a lost banking paradise,

the Captain Mainwaring world.

-What do you mean it's a fake?

-Of course it's a fake, and a very obvious one, too.

It doesn't really bear very close examination.

Only a fool would have been taken in by it. Who gave it to you?

-You did!

-Well, didn't you examine it? I did?

The reality, I feel, was somewhat different.

All right, I'll give you five ones for it.

We shouldn't forget that, actually, in Dad's Army, Captain Mainwaring

was portrayed as a bumbling, pompous, slightly inept figure.

You know, you're a financial wizard, Mr Mainwaring.

I don't wonder they made you a bank manager.

They may have been short on financial wizardry,

but back then, at least bankers refrained from the hard sell.

-ARCHIVE:

-'Bankers maintain the safe, respectable,

'almost religious trappings that have come to be associated

'with financial prudence.'

It's very important to understand that banks do have

this double-faced aspect to them.

They're both utilities there to serve society and the public,

and they're also profit seeking enterprises.

Now, which part of that twin identity you emphasise

tends to change throughout history.

-ARCHIVE:

-'People trust banks.'

If you go right back to the beginning of the 20th century,

the banks existed to collect deposits from individuals

and lend them to companies.

And the individuals were, more or less, passive providers of funds,

and the companies were the real clients of the banks.

And even the buildings reflected

the stolid values of high street banking.

This pub was once a branch of National Westminster Bank.

Symbolically, it was very important.

The customer would walk in across a marble floor,

he or she would be surrounded by acres of mahogany and oak,

by rich, brass fittings, by huge chandeliers.

It exuded power and stability and respectability and strength.

As personal wealth increased,

banks decided to open their doors to more customers.

What can I do for you?

I'm getting married,

and I thought I ought to have my money paid into a bank.

I think that would be well worthwhile. An excellent idea.

By the 1970s, around a half of adults had a bank account.

You'd have had a current account and a deposit account, and that would have been it.

And the bank manager would have known more about

your personal affairs than you might perhaps have preferred.

But all that was about to change, as Britain's banks,

like pretty much everything else,

were swept up in the social and cultural revolution of the late '70s.

When Mrs Thatcher became leader of the Conservatives,

she was determined to reshape the economy,

and banks were a prime target.

There's still a little bit sticking up there, you can see it in the reflection.

She was invited by one of our biggest banks to lunch,

and these bankers were very patronising towards her

and gave her a very hard time.

And I said to her, "Don't worry, Margaret."

"When the trumpets sound and the elections called, they'll put all

"this on one side, they'll forget about it and they'll vote for us."

And she said, "THEY might forget about it, but I won't."

So it always rather affected her attitude to banks,

she didn't really trust them very much,

and she didn't think they were very well run.

She wasn't just settling scores, she wanted to change the country.

After all, this was the start of the free market revolution.

-THATCHER:

-'It is our passionate belief that free enterprise

'and competition are the engines of prosperity

'and the guardians of liberty.'

Only dynamic, growing, free enterprise economies can provide.

Stagnant, state-grown economies cannot and never will.

There was a change which occurred deliberately during the time

that I was in government, from a highly regulated,

highly controlled economy, to one which was much freer,

in which people were encouraged to do their own thing

and if they did successfully, then they would benefit,

and the economy would benefit.

And so there was a feeling,

and there was some justice to it, as well,

that the city was being over-restrained,

could do a lot more, make a lot more profit for Britain

and more profit for themselves in Britain means more tax revenue,

the politicians hope, for them to spend on their priorities.

-Morning.

-Morning, sir.

Cecil Parkinson was given the job of shaking up the City

and its male-dominated banks.

I don't think any aspect of Britain changed more

than our financial markets during our period in government.

The changes that took place in the City at that time

were even more radical than anything that happened in industry.

The Government deregulated,

reformed and restructured the financial world.

ARCHIVE: 'Now the city is about to undergo a siege

'which could shake it to its foundations.

'They call it the "Big Bang".'

The Big Bang happened in the City of London today.

It was the day when old-fashioned practices

gave way to new ways of working, and to the computer.

Age-old restrictions were abolished, allowing banks to move beyond

simple savings and loans into more lucrative areas, like share trading.

Their new operations were known as investment banking,

and the ethos was all about maximising profit

and reaping the rewards.

Cancel it. Cancel five for 15.

Investment bankers, by and large, are very driven individuals...

Six, seven at the moment. I'll come back in a second.

..and they began to rise to senior positions in the banks,

their risk appetite, their methodology began to infect

and affect the staid banks that they'd joined.

Working for you now, working for you now.

At an investment bank, it's all about how much profit you generate.

What's the short sterling, quickly?

The power lies in profit. That is the rule in investment banking.

That's probably not the rule in retail banking.

With a housing boom, which saw prices more than double in the '80s,

came a voracious appetite for consumer goods.

Credit to pay for them was heavily marketed by banks.

Don't worry, Money. I've already paid. It's much easier and faster with me.

And between 1985 and the end of the decade, our personal borrowing

doubled, reaching more than £30 billion a year.

Here we come!

Prior to the Thatcher revolution, it was considered in Britain

not quite the thing to go after wealth and go after money.

During the late '70s and '80s we became a nation of home owners.

You work hard, you play hard, and you enjoy the rewards.

In a credit boom, money becomes very cheap and very easily available.

So someone on a 20 grand salary will get credit via credit cards

of £15,000, £20,000.

That is clearly what happened in the boom times.

Massive mortgages, massive houses, because money is so cheap.

Bumbling Captain Mainwaring had become a city slicker

chasing profits and a bonus.

50 million to Lennox.

Now success was defined by shareholder value -

increasing the bank's share price.

The shareholders were putting tremendous pressure on the banks.

They wanted the returns with the stock price,

they wanted high dividend payouts...

OK, let's go, let's clean this position out.

..and then that drove a lot of the management to think about

focusing on other areas of the business

where they could get high returns quite quickly,

and sometimes that was to the detriment of the customers.

Previously, the first question that a banker would ask was

what products and services does my customer require?

After the shareholder value revolution, the first question

that a banker asked was what profit can we make

to satisfy the shareholders, and what can we do to and with our customers

to achieve that profit level?

No-one caught the go-getting bug more than bankers.

The more money they made for shareholders,

the more they would earn for themselves.

There were certain individuals who really stood out

at being able to deliver results that were higher

than the rest of the bankers in the industry,

and they became known as the rainmakers.

So there was this huge pressure to find rainmakers,

and that bid the price of these rainmakers up,

because a lot of banks wanted to hire them.

But it wasn't just City high-flyers who were paid on results.

Peter McNamara was a key member of the Lloyds Bank executive team

which introduced performance related pay for all 40,000 staff in 1993.

More senior people were awarded shares.

If the rank and file met targets, they got modest cash bonuses.

Fine in principle, but in practice,

the industry let bonuses get out of hand.

Bonuses shouldn't have been more than 10% or so of their basic salary...

..and that worked adequately, without being too dangerous.

As soon as those cash payments started exceeding that

in other banks, I think you started seeing some of the problems being created.

The pressure came on too much to sell things irrespective

of whether they were right, or indeed, what was being sold.

There's nothing wrong with performance related pay, as such.

But, in essence, you get what you pay for,

so if you incent people to drive volume at any cost,

that is a high-risk strategy, because the danger, of course,

is that they sell products to people who don't really need them.

In Bournemouth, the Fletts believe it was exactly that kind of

incentivised selling which has caused them so much trouble.

After they bought the Hotel Piccadilly in late 2006,

their bank urged them to take out an interest rate swap to hedge,

or insure, against a rise in the mortgage rate.

He brought with him about six pages of presentation.

We did look at the presentation. I have to say

I didn't really understand it, and I went missing for half the meeting

because the fire officer was here and I went to see him.

And then came back on that meeting and just said,

"We really can't cope with this right now."

But people at the bank weren't going to give up.

Phone calls trying to persuade them to take out the swap

went on day and night.

I had them, Stewart had them, sometimes the phone calls were

in the evening, eight o'clock at night.

We got phone calls at home on our private phone,

our phone number at home and on our mobiles individually.

We did keep saying we really didn't want to down this route.

We still didn't really understand it.

This went on from mid-February until June.

And I came home one night about nine o'clock on a Friday,

and Stewart said, "I've got a feeling I've done the wrong thing here,

"because I've just said on the phone that we'll go ahead

"with that policy."

I was anxious because I felt, deep down, that I would regret it,

but I said, "Well, I've done it now, and at least we're protected

"against the interest going up."

But following the crash, the Bank of England cut interest rates

in an attempt to revive the economy.

This meant the Fletts had to start paying the bank for their swap -

around £6,000 a month.

The bank said they couldn't back out,

because the phone call was a binding contract.

I did bitterly regret it.

I've lived with that for five years,

with that regret costing us thousands and thousands of pounds.

Performance related pay was helping banking become more profitable,

but it also got out of control.

And there was another way the banks evolved which would contribute

to the turmoil they're in today -

..the move from local, face-to-face branch banking

to centralized, automated services on an industrial scale.

Hi. Did you get my call the other night?

In the 1990s, banks were brimming with confidence.

They spent heavily on glossy marketing,

and spent even more on a frenzy of takeovers and mergers.

'A merger between Lloyds Bank and the TSB

'could create the biggest bank in Britain, with 15 million customers.'

'Barclays Bank has agreed takeover terms with the Woolwich,

'in a deal worth more than £5 billion.'

'Lloyds TSB says it wants to take over the Abbey National...'

'..in a deal worth £19 billion.'

'The other banks shares also went up,

'as investors tried to guess who might be the next takeover target.'

If you go back to the 1970s, then you had banks, building societies,

insurance companies, investment or merchant banks,

which were all performed by different businesses.

What we got were integrated financial conglomerates

that performed all of these things.

Banks began to move operations away from high streets

to out-of-town locations, like this.

You're looking at potentially transferring some funds

from one account to another.

Between the mid-nineties and 2010,

the number of branches fell by a third.

I can see that there was a total of £19.12 deducted.

The idea was to cut costs and improve service.

And as competition intensified,

bankers offered perks to account holders.

Deregulation had already delivered for shareholders.

Now it was the turn for customers and country.

You got things like free banking, that was seen as a great asset,

a boon to the consumer from this deregulation.

The mortgage market, which used to be quite hard

for people to get into, that became much more competitive.

So you can see why lots of people, including the politicians, thought,

"This deregulation is great."

"It's great for consumers, they're getting a better deal,

"they're getting better choice, and at the same time,

"these institutions are making lots of lovely money, some of which

"we can tax to spend on things we governments would like to spend on."

Banks vied to offer innovation and automation.

Bank and financial services has become a lot more customer-friendly,

and particularly with the introduction of technology.

This machine - it's called an Automatic Bank Teller -

offers self-service banking 24 hours a day.

Cash machines, credit cards, debit cards.

-MACHINE:

-Please insert your card.

I have an internet account, a telephone bank account,

because, you know, as a working woman, getting to a bank

between the hours of nine and three is plainly ridiculous.

Everything's closed round here, including the bank.

But I'm still all right, because this is an automatic cash dispenser.

Cashpoints, or ATMs, were first unveiled in Britain

way back in 1967.

It was hoped they'd cut costs and prove convenient for customers.

Hey, presto! The computer's done its sums,

and has come up with a couple of crisp fivers.

In the heart of rural Wales, Peter McNamara these days

runs a company that operates and installs ATMs.

Now, there are about 66,000 in the country.

But when he became a senior Lloyds Bank executive in 1990,

there were only 17,000.

The idea of ATMs was to free up time so that customers could have

better advice, quality of service,

from the people inside the banking branch.

That was much of the theory as to why ATMs were deployed.

These new "holes in the wall" were popular and convenient.

But like many technological advances that followed,

instead of improving relationships between banks and their customers,

ATMs did the reverse.

The great amusement was that people would queue outside in the rain

to use a cashpoint machine, rather than going in

and face a person in a till whom you could have talked to,

so you felt more comfortable with a robot ATM device,

than you did with an individual.

All that sort of thing reduced the number of people

in banking branches, and over time, reduced their knowledge of customers,

because, if you don't see the customer on a regular basis,

you don't really know them.

The big change that occurred right across the financial system,

including in retail banking, was a shift away from the culture

that was based on relationships,

to one that was based on transactions and trading.

The modern banking revolution had weakened the relationship

between these giant institutions and their customers...

..and with incentivised pay in the mix, it would only take

one more factor to unleash an unprecedented mis-selling scandal.

Banks became sales machines.

By the 1990s, nine out of ten adults had accounts,

getting on for double the number of a generation earlier.

It was the perfect sales opportunity

for the cornucopia of financial products the banks could now offer.

Asset management.

A Lloyds Bank personal loan.

Life insurance.

Unit trust saving, how very modern! There's more!

As people became more prosperous,

their financial affairs became more interesting to banks.

I've done rather well out of it.

And, suddenly, the consumer became an interesting customer

in his or her own right for financial products.

This is what you pay as a first-time buyer.

Really, if you had the core relationship of a current account

customer, your chances of selling them another product,

a mortgage, a personal loan, a general insurance product,

a pension, were all very good.

A massive sales drive was now needed to bring in the profits,

because fierce competition between the banks meant they were making

less from basic services, like savings and loans.

The price war in the mortgage market intensified today, after the Halifax

announced it was cutting its main lending rate by 0.75%.

And for customers who stayed in credit,

current accounts were free, but costly for banks to administer.

People have come - and this is a problem for the banks -

people have come to resent paying for banking services.

Basic money transmissions the banks were no longer charging for.

Interest rates were coming down,

it was getting harder and harder to make money there.

In many cases, they'd compete very hard on the underlying products.

They'd compete hard on mortgage rates or loan rates,

but at a level where they probably weren't profitable for the bank,

and they only became profitable by forcing somebody

to take another product as well.

By the early 2000s, on top of mortgages,

we were borrowing £80bn a year from the major banks,

almost double the amount of five years before.

The bankers were adopting the tactics of high street retailers,

rebranding branches as shops, offering extra treats...

..and even poaching department store sales staff.

People like Abigail Rowland.

When I applied for the job at the bank,

they were very interested with my retail experience...

..and they were also very happy

that I'd got such a strong customer service background.

Days out go-karting were just one of her perks

for selling financial products.

At all the big banks,

there were generous bonuses to reward staff who met sales targets.

It was a booming business.

We were making the company a lot of money,

and we were rewarded really, really well.

If your team won an award for being one of the best sales teams,

then you might all get to go out on a jolly day,

and that was in work's time.

They might take you to Alton Towers or go-karting.

There were lots of things like gift vouchers, and you could have £100 worth of gift vouchers,

but I won a trip to Las Vegas for five days, all expenses paid,

so that was just a treat.

Her job was selling insurance to people applying for credit cards.

The better she performed, the greater the rewards.

Every time a customer was issued a card,

they had to contact her team before they could use it.

And that was a sales opportunity,

but customers didn't necessarily realise.

When people phoned in, we wouldn't say that we are a sales team,

because I think, in essence,

that would have made people a little bit...

..potentially a little bit prickly,

and less receptive to being sold a product.

I think the reality is that customers often don't know

when they're being sold to.

They often think that the person in the branch

or the person at the end of the phone is on their side.

I think one of the sad things about the crisis has been

it has shown the extent to which the person behind the till

has not always been on their side,

but has been incentivised to sell them something different.

In 2000, there were close to 50 million credit cards

issued in Britain, double the number of five years earlier.

And every credit card, or loan application,

was a chance for banks to sell another profitable product.

People were so enthusiastic about having this credit,

that they were very willing to take on extras,

and they almost seemed happy.

We'd read out the long disclosure that we had to read to them.

I'd think, "Are they absolutely understanding

"what I'm saying to them?"

But some people seemed overjoyed to have it.

The product she, and thousands like her, were selling

was called Payment Protection Insurance or PPI.

Like so many developments in banking,

it was a sound proposition, in principle.

The product, initially, was quite a sensible one.

It gave people insurance cover if they lost their job

and weren't able to repay their personal lending.

And providing it was sold to people for whom this was relevant,

and for whom the terms and conditions were right,

it was a fine product, really, and a sensible one.

PPI became a phenomenal money-spinner for financial services,

and banks took the lion's share.

In 1998, PPI was bringing in an estimated £1.8 billion worth of premiums.

In 2005, it was £5.5 billion,

accounting for about a third of some retail banks' total profits.

In the zeal to increase sales,

millions of PPI policies were mis-sold.

One of the problems with selling financial products

to retail customers...

..is the bank knows so much more about these products

than its customers do.

And yet, the bank is not constrained

under our present legislation, and the way that things work,

the bank is not constrained by duty of care for the customers.

It doesn't have to think genuinely what is right for the customer.

There were certain exclusions which were never explained to people,

so it wasn't useful for people who were self-employed,

it didn't cover a pre-existing medical condition

like a back condition, but that was never explained to people,

so people would come to try and use the cover,

and find that actually they weren't covered in the first place.

In some cases, and this was the worst,

it was simply added on automatically to somebody's loan,

and in some cases, they were they were just not aware that they'd bought the product,

yet they now had a much bigger loan to pay back

because it had simply been added on.

I think PPI was a shocking, shocking episode.

All banks were involved, one way or another, of any consequence.

They were all involved, over a long period of time

in selling products very inappropriately

to large parts of their customer base.

I think there's very little that you can say to defend it.

For a large number of customers, it was a rip off.

When he worked as a salesman for a bank, James Ducker used to go

to the horse races to spend some of his commission.

I would have an annual target, my team would have an annual target,

the area would have an annual target, etc, etc.

And the aim was to exceed it as much as possible.

And we knew that if we hit our annual target,

and then the area hit theirs, etc, that the bonus pot would get bigger

and bigger, and we would get a better and better share of it.

He sold interest rate swaps,

a kind of complex insurance for businesses taking out loans.

Like PPI, they had a useful function, in theory.

But he thinks it was the banks that had most to gain.

Customers were viewed as a wallet.

So, "We want a bigger share of their wallet",

was this phrase that's still used today.

Hello, mate. Tenner to win on Al Gharra, please.

-£10 win on number four.

-That's the one.

-Thanks a lot. Good luck to you.

-Cheers.

The customers are there to make money out of.

They're not there to be as concerned as you should be about them.

And once the deal's done, you don't speak to that customer again

for a year, two years or even more.

The products he sold were designed for sizeable companies.

But he was expected to grow the market...

..finding smaller and smaller businesses to sell to.

Salesmen would be in the pub,

high-fiving each other about how much money they'd make.

As awful as it sounds now,

there was a discussion of how much they'd raped the clients.

That was a common phrase.

Last year, the financial regulator carried out

a preliminary investigation of swap sales,

and found 90% broke its rules.

Many customers could be entitled to compensation,

as 40,000 swaps have been sold since 2001.

Banks' aggressive sales culture had turned toxic.

I didn't like it, that sounds rather pathetic.

But no, it hurts, morally.

I would go home and be unhappy,

and talk to my family and wife about what I can possibly do differently,

but once you're trained into an area of specialism

and particularly such a small area,

there is very little you can do about it.

The culture became so strong,

that I think that if I'd been in that environment,

I'm not sure I would have asked the hard, personal questions myself.

So I'm being rather careful about throwing rocks when I suspect

that I might have been as unthinking as other people.

Because the culture was absolutely, incredibly powerful.

In the early 2000s, despite complaints about sales culture

and PPI from consumer organisations,

there was little criticism of the banks from politicians.

Because, thanks in part to profits from mis-selling,

financial services were booming.

By 2005, they were contributing £88bn to Britain's economy,

more than double the amount of a decade earlier.

Politicians of all parties were duly grateful.

Can I start by congratulating all of you here tonight

for the outstanding - indeed, the invaluable contribution

that you and your companies make to the prosperity of our country.

Year after year, Gordon Brown would go to make the Chancellor's

big annual speech at the Mansion House in the City,

and basically hose the assembled oligarchs of finance

with sycophantic flattery.

What you have achieved in the financial services sector,

we as a country should aspire to achieve

for the whole of the British economy.

Now, any government at any time,

when confronted with an employer that employs a million people

and contributes 10% of its GDP, of course it takes notice of it,

it doesn't matter what sector it's in, it is very, very important.

The tax revenues generated by banking and financial services

helped fund new hospitals, schools and a lot more besides.

The banks had reached the zenith of their power and influence.

The days of Captain Mainwaring were now just a memory.

So embedded did we have this idea

that bankers were these titans of the universe,

these brilliant minds who could come up with all sorts of solutions,

that under Labour, particularly, it has to be said,

they were given lots of knighthoods,

they were put on government task forces.

A banker was asked to review

the future of the National Health Service.

All this euphoria about bankers

drowned out a growing chorus of complaint about PPI.

According to one report in 2005, as people began to claim

on their policies, 85% of them were turned down.

'Payment protection insurance has been heavily criticised

'by the charity Citizens' Advice.'

'..many people are being overcharged and policies are often mis-sold.'

'..is often deliberately designed to exclude

'some of the most common causes of debt problems.'

'The Financial Services Authority has told us that it's on the case,

'and they intend to take action if the banks don't clean up their acts.'

But despite the complaints, the Financial Services Authority,

the body responsible for regulating the banks,

was slow off the mark in dealing with PPI mis-selling.

It wasn't until 2005 that the FSA picked up responsibility

for general insurance which included PPI, and then, frankly,

it still took another six years, which is too long,

for the real intervention to happen.

Yes, we should, at an earlier stage, have said, "Here is a product

"which is accounting for a very large proportion

"of the total profitability of the retail banks."

"Can that possibly be in the interest of everybody

"to whom they are selling it?"

And we weren't doing enough analysis of that,

but we also just did not have the confidence

that it was our role,

or that government or parliament would back us,

in the role of aggressively challenging the industry

on those issues.

There would have been no political support

for a regulator who did that.

You would have been taking away products that people

appeared to want, and you would have been hitting at an industry

and very well-paid people who were very strongly politically connected.

But the balance of power was about to shift.

On September 15th 2008,

when panic swept through the City as Lehman Brothers went bust,

a golden decade of growth came to a shuddering halt.

SHOUTING

In the days that followed, the entire banking system

was on the point of collapse, as lending between banks dried up.

Only a colossal government bailout could prevent catastrophe.

The Government does not want to run Britain's banks,

it wants to rebuild them.

The long term future of UK banks lies in the private sector.

But our objective today is to stabilise and rebuild,

and we will maintain our stake for as long as it takes to do that.

The bankers' track record for financial mastery was destroyed,

but they pointed to global forces beyond their control.

When the astonishing scale of mis-selling emerged,

there was no-one to blame but themselves.

In Bournemouth, the music plays on,

but the Hotel Piccadilly is struggling.

It varies between £5,500 and up to about £7,900 a month

it's costing us.

My goodness!

The Fletts are counting the cost of the financial product

they'd been persuaded to take by their bank.

That's exactly four years, it's cost us £322,987.31.

322,000?

Which we wouldn't have had to pay if we hadn't - I hadn't -

have signed that agreement.

This is a really big reality check.

They can't afford the payments on their interest rate swap.

But they can't afford to cancel the agreement either.

We asked how much it would cost to come out of this policy,

and we were told it was £38,000 to come out.

Each time, it goes up and up and up.

The more we pay, the more the break clause is to get out of it.

Six months ago or so it was £346,000 to get out of it,

and I'm scared to ask how much it is now.

Like so many others, they're in despair.

It's really sad, we've been here for six years, it's a dream.

Stewart and I have weathered through it.

It's been really tough, sometimes.

The staff don't really know how I feel about it,

I've tried to be bright...

..but we're going to lose everything, and it's really just not fair

of the banks to make us go bust at this stage.

With billions of pounds of state money spent propping up the banks

after the crash, public and political patience

has finally run out.

We had a succession of serious scandals, which, taken together,

fundamentally changed the way that we perceive banks,

and led us to the conclusion that there really is something wrong

in the culture of these institutions.

People talk about the financial services industry

as the golden goose.

Well, if it's a golden goose,

it's smelling pretty rank at the moment.

And even those who helped begin the transformation of our banks

into a vibrant industry now believe banking culture

went badly wrong along the way.

The mis-selling scandals are absolutely appalling,

and what they point to is a serious cultural defect among bankers.

I mean, people should not behave like that.

Looking back, Lord Parkinson, do you think that the process went too far?

Well, I think, with the benefit of hindsight, it did.

And I'm quite sure a lot of members of the boards of our banks

would have been totally bewildered

if they'd known the range of activities

that were being carried on in their name.

# But, God, I loved it

# Making a profit From somebody's loss

# I never knew exactly Whose money it was

# And I did not care... #

Our perception of bankers has changed,

from misplaced nostalgia for Captain Mainwaring,

via adulation for so-called masters of the universe...

So, what happened with your 20 million buyer?

..to today's anger and contempt.

# ..the good old days

# When I was free And the complete banker

# I'm a conscience-free Malignant cancer on society. #

Finally the bankers have been called to account.

To deal with millions of complaints about misselling, they've had

to employ 12,000 extra staff in huge centres like this one in Manchester.

Some think the eventual bill for paying back mis-sold PPI policies alone

could reach £25 billion -

enough to give every man, woman and child in Britain a cheque for £420.

Bank bosses have been hauled before the parliamentary

commission on banking standards.

Libor, PPI, interest rate swaps, it doesn't matter what the

scandal is, you seem to have a finger in every one of those pies.

This huge bonus culture is something that has grown up since the '80s.

What this means in plain English is that if you can't get the profit margins to which

you feel you are entitled by responsible banking,

you will go in for irresponsible and reckless banking.

The Commission is recommending a range of reforms,

and its chairman has reached one conclusion of his own.

One of the extraordinary aspects of this crisis is even after all

these scandals and so many stories of the most appalling behaviour,

rip-offs on a grand scale, rigging of markets,

there's hardly anybody been seen in an orange jumpsuit

and I think it's about time we had changes in the law

to make it clear that what most of us would consider

fraud and theft are treated as such.

So can we ever trust the bankers again?

Since the overwhelming scale of the mis-selling scandal emerged,

a new generation of bosses has taken the hot seat at big banks' headquarters.

They say that from now on things will be different.

In my view, the root causes were an excessive focus on short-term

profitability without regard to the impact on the customer

and that has stopped and it can never happen again.

I think what went wrong with PPI and other products that were

mis-sold to customers is first, losing customer focus.

Second you have the design of products,

products were absolutely in the interest of customers.

And third, sales incentives went too far.

And it's the combination of these three factors

that needs to be changed.

It's not just about regulation, it's actually behaving in the

sort of way that the rest of society would expect you to behave.

And those cultural changes can only come ultimately from the top

of the banks, from the boards, and chairmen and chief executives.

The banks say they will hark back to more traditional times and methods.

Sales incentives are being cut back.

They want to rebuild personal relationships with customers.

And they claim they'll stop selling products that people don't need or understand.

A return, perhaps, to more boring banking, with trust at its core.

I think boring is good, boring in the sense of dependable,

trustworthy, customer focus, I think it's very good.

I do think though that trust and reputation may be lost overnight

and it is a long process to build and to retain.

We're not supposed to think of customers as people

we can simply make money out of.

We're supposed to think of customers as people who are very important

to our long term success and we're important to their long term future,

so that should be the essence of banking.

Others believe our banks are too big and too powerful and they should be dismantled.

Banking got far too big for its own boots.

It thought it ran the whole show.

I'd like to see many more banks with smaller market shares

serving customers with particular needs in particular ways.

A variety, a variety of people out there on the high street that

I can then choose between.

I think what we need is a smaller financial services sector

which is focused on the real needs of the real economy.

But this change may come at a cost to a system

that for all its faults gave us free bank accounts,

a cash machine on every corner,

and in the good years delivered riches to the nation.

Are we willing to live with costlier mortgages,

costlier credit cards, it being much harder to get access to bank loans?

Is that the price worth paying for a safer financial system?

What else would the British economy have that can drive growth

forward in a meaningful way? Because finance has been

so big that many in many ways it's squeezed out other parts of the British economy.

Terri and Stewart Flett have more immediate worries.

They believe they were mis-sold their interest rate swap

and like thousands of other business owners they're waiting to find out

whether their claim for compensation will be successful.

If we don't get our money back there's no way

we can survive here in this business.

It's not possible. I don't know anybody who trusts the bank anymore.

We'll never trust the banks, not for a very, very long time again.

The Fletts hope reforms to our banks will mean

others avoid a similar ordeal.

These massive organisations exist for the common good.

The banks lost sight of that sense of the common good.

But there is a chance to reshape the entire architecture of how

banks are regulated, how they're governed, how they're run,

and most importantly of all, what values drive them.

You'd be kidding yourselves if you believe that there won't be another scandal in the future.

I'm afraid, things being what they are,

somebody will find something to sell and they'll do it in a way

that they shouldn't be doing,

and the regulators will be found wanting.

I'm afraid that has happened in the past,

it's going to happen again in the future.

All we can do is try and make it less likely.

However banks are finally reformed, what the Fletts

and many others want from their bankers is something fundamental.

We need to be able to trust our banks.

And I do know they've got to make money,

but they need to be on our side, I think.

I really feel this country cannot get moving until the banks start

playing the game and do an honest, decent job for us all.

How has the banking crisis affected you?

Get your voice heard and join the debate at the Open University.

Go to bbc.co.uk/bankers and follow the links to The Open University.

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