All in all it’s just another bump in the road…

Arguably after the recent RBS/NatWest banking fiasco the most enduring sentence of the summer, and potentially the year, will be “bump in the road”. Initially disguised in an almost unintelligible wall of jargon – full of “knock ons” and “going forwards” – this sentence utter by Susan Allen, director of customer services at RBS Group on an early evening BBC TV report emerged into the bright light of media attention and viral replication. Is this the same bank Stephen Hester only a few weeks before said was making good progress?

As banking appears to be on a good run of bad news, perhaps the RBS “bump” is actually already more of a mound. A mound being built on day by day as the original problems of failed credit and debit reconciliation is shown to have spawned sequelae, such as fines applied to people’s accounts by other financial institutions for failed payments. Those Ulster Bank customers who have suffered the longest because of an anomaly of the alphabetical sequencing system used for their payment reconciliation’s which placed them at the end of early queue probably have seen the situation in a more bucolic way and as “Large Pile of….”.  Is this really the same bank Stephen Hester only a few weeks before said was making good progress?

RBS bumping along …..   © Daily Mail  4th May 2012

Large “Piles” are currently a reoccurring theme for banks. The pile of illicit emails between Barclay’s Bank Traders and their counterparts in – as The Guardian put it – ” a coterie of leading banks” as they manipulated the Libor rates. The growing pile of lawsuits and legal rulings filed in courts in Asia and North America.” The pile of money that Barclay’s has already paid in fines to the regulators in the USA. And then right at the “top of the pile” is the pay-off Bob Diamond may receive to supplement the £100m he has already earned from his tenure at the helm of Barclay’s Bank and previously Barclay’s Capital.

We can only speculate at the scale of the damage done to Barclays Bank’s reputation but comments such as this will endure online and in memories, for a long while. Jamie Doward writing in the The Guardian caught the mood “The size of the fines was significant and the opprobrium heaped on Barclay’s unremitting”. He then catches the quote that if it was a photograph it would come to personify the event: “This is the most damaging scam I can recall,” said Andrew Tyrie, chair of parliament’s , Treasury select committee. ”

Following “hot on the heels” of the banker led financial crisis, that has destroyed people’s livelihoods and lives across the globe and yet strangely left the bankers themselves virtually unscathed, it is not surprising that it has galvanised public opinion. Because of the connectivity between private and public finances, and the knowledge that many bank trades have elements and risks that are not immediately apparent or which experience the “law of unforseen” consequences in such a complex environment has finally been recognised legislation is a certainty across Europe.

In fact words like mounds, bumps, piles are just not appropriate when used for banks. Mountains (i.e. of debts, built up risk) and cavernous gorges are much more appropriate: the later because it suggests the arcane and hidden and hints at the dark holes of deceit and subterfuge. As always the devil is in the detail and here

“According to the lawsuit, each bank studied by Schwab’s experts “dramatically increased its collusive suppression of Libor” – effectively conspiring to keep rates low. The lawsuit cites claims that the “under-reporting of Libor had a $45 bn effect on the market, representing the amount borrowers [the banks] did not pay” investors who had bought its financial products” reports The Guardian. Notably Charles Schwab’s law suit focuses on the Libor rate during the two-week period following the fall of Lehman Brothers, which separately Barclay’s benefited from considerably.

The numbers are eye watering and the realisation begins to dawn on the those legislating that everything to do with the banking industry may have more to do with “bumps in the night” than any bumps in the road. And then there is the difficult matter of those conversations between Barclays Bank and the Bank of England. Collusion and collaboration appear to suggest the legislators and the political elite may yet get drawn into this crisis.

The bad news is all too clear to see “correlation is not necessarily causation”
© The Daily Telegraph

Positioning the banks as inherently evil though is equally incongruous because our economy needs them to function. Perhaps the situation is better interpreted as that too many cliques have formed within our banks and they need dismantling whether they’re social, informal, school or society based and have a grip on politics through timely donations. Vince Cable, Business Secretary  has been chiming on about the behaviour of the banks and their “obsession with short-term trading profits , not focusing on the long-term are actually throttling the recovery”. Speaking on BBC News he identifies this as “frankly anti-business” He stopped short of accusing them of hoarding cash but if he had he would have been in tune with many commentators – and worryingly for the Tory part of the Government the Tory voting small business owners “who just cannot get a loan from the banks”.

The Guardian Economics Blog notes “An extra £50bn spread across the financial services industry will make Barclay’s’ reserves look better and improve its share price. Chief executive Bob Diamond, given more funds, will have the perfect excuse to divert some of the cash to paying himself and his traders bigger bonuses. Arguably, all the banks have been doing it for the last four years.”

This situation certainly does not appear to be consistent with a “bump in the road” ; in fact to the small business owner and man in the street it actually feels much more like “another brick in the wall”. The wall is still getting bigger and the banks are still “too big to fail”, and it seems unless these walls are scaled soon the defense’s will have been rebuilt (think USA, think Republican …), and once again “the wall will be too big to fall”.