:00:19. > :00:23.Welcome to World Business Report. This year has been another
:00:23. > :00:31.difficult one for the banking industry. We have had a surprise
:00:31. > :00:40.trading losses at the Swiss Bank and JP Morgan. What can banks do to
:00:40. > :00:46.shore up their reputation? To help me answer that is the author and
:00:46. > :00:56.former vice chairman of CitiBank. He joins us from New York. A former
:00:56. > :01:00.
:01:00. > :01:05.boss of the British bank or Bank of Why have the banks had a difficult
:01:05. > :01:11.year after previous difficult years? There is a saying coined by
:01:11. > :01:16.Warren Buffet. When the tide goes out, we see him wearing bathing
:01:16. > :01:21.trunks. As the financial tide has gone out, the sins of the past have
:01:21. > :01:26.been exposed. Bank after bank is getting into trouble now for a risk
:01:26. > :01:32.that were made in previous years. How would you might have their
:01:32. > :01:39.reputations as an industry? It is at the bottom. Events over the
:01:40. > :01:46.summer, he mentioned some of them with JP Morgan, it is difficult to
:01:46. > :01:52.remember such a crop of really serious issues. If you ask members
:01:52. > :01:58.of the public in the UK, the US and Asia, they will say, this is an
:01:58. > :02:06.industry that has lost our trust. George, would you agree with that?
:02:06. > :02:13.Have banks lost the trust of consumers? I do agree with that. We
:02:13. > :02:17.are talking about trust based on these big stories. What concerns me
:02:17. > :02:23.in the future is the trust between business people and their bank
:02:23. > :02:30.managers and advisers and all the people who make up the economic
:02:30. > :02:35.environment, which is necessary for us to move forward. I think that
:02:35. > :02:43.trust is an important national asset. Everybody has got to work to
:02:43. > :02:49.get that back. Otherwise we would not produce economic growth.
:02:49. > :02:53.William, thank you for joining us from New York. You are instrumental
:02:53. > :02:59.in forming an overview of what should happen with the sector. He
:02:59. > :03:09.has a crucial American perspective. In the US, they have been great
:03:09. > :03:11.
:03:11. > :03:16.moves to regulate the banking industry. In the coming weeks,
:03:16. > :03:23.there will be a probe. What is important is that there is an
:03:23. > :03:28.emphasis on culture. Culture is just as important as capital. Too
:03:28. > :03:35.often, the regulators worldwide are con trick -- concent- concent
:03:35. > :03:40.increasing capital. Most important of all, equally important, is the
:03:40. > :03:44.culture of any institution. We need trust and integrity from the top of
:03:44. > :03:50.the institution. The board of directors right down to the teller
:03:50. > :03:56.who deals with the public. That is what we are lacking. We need to
:03:56. > :04:04.reinstate that. It has been lost. George is absolutely right. Trust
:04:04. > :04:14.needs to exist at different levels. The trust between a consumer, or a
:04:14. > :04:15.
:04:15. > :04:20.company and airbag is -- a bank is different with a counter party.
:04:20. > :04:28.need to have trust and confidence, starting with the employees. They
:04:28. > :04:36.make an institution the face to the public. You have to have your
:04:36. > :04:41.depositors and clients... Trusting. This goes from the board of
:04:41. > :04:48.directors are to the teller. You need crossed in all these areas. If
:04:48. > :04:55.not, the public will have the views stated earlier. The banking
:04:55. > :05:00.industry is critical to get the world economy moving again. Philip,
:05:00. > :05:09.you cannot legislate or regulate Trust, can you? You can do certain
:05:09. > :05:15.things. Capital, liquidity, that's all very well. I will agree with
:05:15. > :05:19.Bill. You can put all those things but unless you get the culture
:05:19. > :05:25.right and re-establish trust, that will not count. The tone has to be
:05:26. > :05:29.set from the top. Here you very senior management of the banking
:05:29. > :05:36.institution has to ask different questions to the ones they have
:05:36. > :05:41.been asking in the past. It should not be, how do we make a big share
:05:41. > :05:45.from shareholders? He first question to ask should be, what
:05:45. > :05:51.products and services should we be designing and offering to our
:05:51. > :05:56.customers? Structure of the Bank that would offer those services.
:05:56. > :06:06.Profits come out of that. In recent years, banks have gone the other
:06:06. > :06:09.way. They say, what profit can we make? There is a difference between
:06:09. > :06:19.the retail part of the Bank and corporate banking and investment
:06:19. > :06:19.
:06:19. > :06:29.baking. Yes. -- banking. There is too much emphasis an important put
:06:29. > :06:34.
:06:34. > :06:40.on short-term profitability rather than long-term. Culture, trust,
:06:40. > :06:45.integrity, reputation. The most important e important e
:06:45. > :06:50.institution has is its reputation. That is the greatest risk of all.
:06:50. > :06:57.There was not enough emphasis put on this. Too much on a short-term
:06:57. > :07:03.gain and not enough on the longer term. We have the problem with over
:07:03. > :07:07.leveraging and the selling side. It Riskt.
:07:07. > :07:14.Risk management has to have the importance in order for all of what
:07:14. > :07:20.we are saying to happen. The senior risk management in an institution
:07:20. > :07:25.needs to have direct access to the border. The board of directors was
:07:25. > :07:31.at fault along with management. They need to be more active. The
:07:31. > :07:41.board hires and fires the senior match must -- management of any
:07:41. > :07:44.
:07:44. > :07:53.financial institution. The product needs to move to the short-term.
:07:53. > :07:58.The move towards a bonus orientated anybody stood up and said, we are
:07:58. > :08:03.concerned? I am concerned about the balance of products out there on
:08:03. > :08:08.the market. Nobody would have listened. They believed that was
:08:08. > :08:15.what markets did. They somehow balanced themselves. The markets
:08:15. > :08:21.had to lead. Well... I think that is a tree. But I am not sure if
:08:21. > :08:29.people were thinking about it like that. -- true. They were thinking
:08:29. > :08:34.about the short-term demands of the markets. I think George has put his
:08:34. > :08:39.finger on an important issue when he speaks about investments. In the
:08:39. > :08:43.'90s and early use of this century, the pressure from institutional
:08:43. > :08:48.shareholders on making management to deliver rapid increases and
:08:48. > :08:53.absolutely absolutely huge. If you were a
:08:53. > :08:59.senior executive and you do not deliver those earnings without
:08:59. > :09:07.taking risks, you were out. In reforming this, the shareholders
:09:07. > :09:11.have to play their part. In the future, banking will be the utility
:09:11. > :09:21.industry. Returns will be lower than in the past. The volatility is
:09:21. > :09:24.
:09:24. > :09:32.less. Liability is greater. Beale, who mentioned some things. What is
:09:32. > :09:39.the thrust in introducing new legislation in the US? It is no
:09:39. > :09:45.different to what you are doing in the UK. The idea is to put in
:09:45. > :09:51.regulation that will avoid the last crisis. It is all fine. But the
:09:51. > :09:55.most important thing is that the institutions, the financial
:09:55. > :09:59.institutions, make sure that internally they have the right
:09:59. > :10:08.culture. They have to concentrate on the long-term. To put a premium
:10:08. > :10:12.on UN risk -- risk-management. The rating agencies, the second and
:10:12. > :10:22.third lines of defence. The institutions need to take the
:10:22. > :10:28.initiatives. One problem icy, whether it be because for the
:10:28. > :10:37.Lincoln report, we were supposed begetting a co-operative co-
:10:37. > :10:47.ordinated set of regulations It is very important that we
:10:47. > :10:49.