Barclays Bank has to pay a penalty of £290 million to the Financial Services Authority in the UK, and the Commodity Futures Trading Commission and Department of Justice in the US. Its crime? Between 2005 and 2009, it lied to them about the interest rate it was paying to borrow money. The reason? To benefit the bank’s derivatives trading positions by either increasing its profits or minimizing its losses. What can we PR pros say?
Foremost: if trust is at the heart of banking, this gross misconduct, which involves more banks than Barclays, strikes at the soul of trust.
It does not take a PR expert to spot that the banking industry has poor corporate governance and supervision. It doesn’t take a PR expert to recommend that the banks must rediscover their ethics and professionalism on the trading and top floors.
The major problem that needs addressing is that derivatives were meant to be part of the risk limitation business. But during both boom and bust times, the finance industry’s risk management instruments became the main source of risk, avarice and dishonest sneakiness, because they (in multiple variations) became the main source of profit. For many years, the big banks repackaged financial products, such as in mortgage backed securities, before reselling them to each other in increasingly overvalued opaque packages. Then when that game collapsed, some of them began fiddling Libor (London Interbank Offered Rate) to keep the derivatives business afloat.
The solution to the latest scandal – besides the requisite defenestration, renewed apologies and promises to do better in future – requires the banking industry to get to grips with how to make money from resolving problems in the real economy. They have to start lending again. They have to be prepared to share risks with needy businesses. That particularly applies to providing credit to small- and medium-sized firms that add value to society; not least because big companies are sitting on massive cash surpluses while they wait for consumer and investor confidence to remerge. Banks, of course, also need to balance their risks with the interests of savers and shareholders.
In other words, banks have to be seen to be doing their bit to make the credit crunch history. Then, and perhaps only then, will PR professionals be in a credible position to communicate to the public on the banks’ behalf the Ws: what, who, when, where and why.
That shouldn’t stop banks from continuing to defend their reputations in the here and now, even if necessarily they must be contrite. They’ve made mistakes, sure. But banks should not take all the blame – or become a scapegoat – for creating the recession. They were just one part of a much bigger picture and problem. They need to keep spelling out the wider issues in all their subtleties; otherwise the banking industry’s role in society cannot be put into perspective. They need to remind everybody that the world needs bankers and banking. At the same time, to illustrate change, they must provide contemporary proof points of why that’s so.
As it stands, bankers are caught between two opposing perceptions: bankers think their elite status as experts, justifies their salaries and bonuses; the public, and most of the media, based on recent experience, regards them as being incompetent and untrustworthy bigheads. That’s not a trivial difference of opinion. Yet it remains well within the realm of possibilities to overcome the polarisation.
My take home message is, if PRs want to justify a seat in the banking boardroom they must spell out how – to restore the reputation of banks – they must refocus their business model. Meanwhile…there’s talk of criminal charges!