26/12/2012 World Business Report

Welcome to World Business Report. This year has been another

difficult one for the banking industry. We have had a surprise

trading losses at the Swiss Bank and JP Morgan. What can banks do to

shore up their reputation? To help me answer that is the author and

former vice chairman of CitiBank. He joins us from New York. A former

boss of the British bank or Bank of Why have the banks had a difficult

year after previous difficult years? There is a saying coined by

Warren Buffet. When the tide goes out, we see him wearing bathing

trunks. As the financial tide has gone out, the sins of the past have

been exposed. Bank after bank is getting into trouble now for a risk

that were made in previous years. How would you might have their

reputations as an industry? It is at the bottom. Events over the

summer, he mentioned some of them with JP Morgan, it is difficult to

remember such a crop of really serious issues. If you ask members

of the public in the UK, the US and Asia, they will say, this is an

industry that has lost our trust. George, would you agree with that?

Have banks lost the trust of consumers? I do agree with that. We

are talking about trust based on these big stories. What concerns me

in the future is the trust between business people and their bank

managers and advisers and all the people who make up the economic

environment, which is necessary for us to move forward. I think that

trust is an important national asset. Everybody has got to work to

get that back. Otherwise we would not produce economic growth.

William, thank you for joining us from New York. You are instrumental

in forming an overview of what should happen with the sector. He

has a crucial American perspective. In the US, they have been great

moves to regulate the banking industry. In the coming weeks,

there will be a probe. What is important is that there is an

emphasis on culture. Culture is just as important as capital. Too

often, the regulators worldwide are con trick -- concent- concent

increasing capital. Most important of all, equally important, is the

culture of any institution. We need trust and integrity from the top of

the institution. The board of directors right down to the teller

who deals with the public. That is what we are lacking. We need to

reinstate that. It has been lost. George is absolutely right. Trust

needs to exist at different levels. The trust between a consumer, or a

company and airbag is -- a bank is different with a counter party.

need to have trust and confidence, starting with the employees. They

make an institution the face to the public. You have to have your

depositors and clients... Trusting. This goes from the board of

directors are to the teller. You need crossed in all these areas. If

not, the public will have the views stated earlier. The banking

industry is critical to get the world economy moving again. Philip,

you cannot legislate or regulate Trust, can you? You can do certain

things. Capital, liquidity, that's all very well. I will agree with

Bill. You can put all those things but unless you get the culture

right and re-establish trust, that will not count. The tone has to be

set from the top. Here you very senior management of the banking

institution has to ask different questions to the ones they have

been asking in the past. It should not be, how do we make a big share

from shareholders? He first question to ask should be, what

products and services should we be designing and offering to our

customers? Structure of the Bank that would offer those services.

Profits come out of that. In recent years, banks have gone the other

way. They say, what profit can we make? There is a difference between

the retail part of the Bank and corporate banking and investment

baking. Yes. -- banking. There is too much emphasis an important put

on short-term profitability rather than long-term. Culture, trust,

integrity, reputation. The most important e important e

institution has is its reputation. That is the greatest risk of all.

There was not enough emphasis put on this. Too much on a short-term

gain and not enough on the longer term. We have the problem with over

leveraging and the selling side. It Riskt.

Risk management has to have the importance in order for all of what

we are saying to happen. The senior risk management in an institution

needs to have direct access to the border. The board of directors was

at fault along with management. They need to be more active. The

board hires and fires the senior match must -- management of any

financial institution. The product needs to move to the short-term.

The move towards a bonus orientated anybody stood up and said, we are

concerned? I am concerned about the balance of products out there on

the market. Nobody would have listened. They believed that was

what markets did. They somehow balanced themselves. The markets

had to lead. Well... I think that is a tree. But I am not sure if

people were thinking about it like that. -- true. They were thinking

about the short-term demands of the markets. I think George has put his

finger on an important issue when he speaks about investments. In the

'90s and early use of this century, the pressure from institutional

shareholders on making management to deliver rapid increases and

absolutely absolutely huge. If you were a

senior executive and you do not deliver those earnings without

taking risks, you were out. In reforming this, the shareholders

have to play their part. In the future, banking will be the utility

industry. Returns will be lower than in the past. The volatility is

less. Liability is greater. Beale, who mentioned some things. What is

the thrust in introducing new legislation in the US? It is no

different to what you are doing in the UK. The idea is to put in

regulation that will avoid the last crisis. It is all fine. But the

most important thing is that the institutions, the financial

institutions, make sure that internally they have the right

culture. They have to concentrate on the long-term. To put a premium

on UN risk -- risk-management. The rating agencies, the second and

third lines of defence. The institutions need to take the

initiatives. One problem icy, whether it be because for the

Lincoln report, we were supposed begetting a co-operative co-

ordinated set of regulations It is very important that we