Putting profits before people

Bank of England governor Mervyn King had some pretty strong words to say about the banking sector in an interview for the Daily Telegraph.

Within the interview, he accused banks of putting profits before people, attempting to maximise short-term profit at the expense of customers.

Perhaps his most shocking comment in the interview was a reference to people in financial services thinking “if it’s possible to make money out of gullible or unsuspecting customers, that’s perfectly acceptable”.

He also questioned the reasons for the banks continuing to pay their staff large bonuses, so soon after much of the banking sector had to be bailed out by the taxpayer.

His message in this interview is important because the Bank of England is due to take over regulation of the banks from the Financial Services Authority (FSA).

Banks should look closely at the areas covered in this interview as they are likely to form the regulatory priorities from the Bank of England in the future.

Whilst it is surprising to hear these comments from Mervyn King, who has himself spent a career in the banking sector, his words do resonate with general opinion about the banks.

Fighting bank against the interview comments, British Bankers’ Association chief executive Angela Knight accepted that the banking sector had got things badly wrong during the financial crisis but also claimed that it had been radically reformed since.

Whilst we think the banks have changed to some extent since the financial crisis, it takes a very long time to completely change an industry culture. There are no real signs that a cultural change in banking has been completed, or even started to any real extent.

Consumers and investors would be well advised to listen carefully to what Mr King has to say about the banks. They exist to put profits before people and are often the very worst place to go for any form of financial advice.

Photo credit: Flickr/The Laird of Oldham