What would happen if a social anthropologist conducted in-depth field research exploring Britain’s banking culture? What could we learn from more than 200 anonymous interviews with senior figures in the industry? In the banking world, What are the painful truths those inside wanted to share? Thanks to Joris Luyendijk, we have the answers to these questions and many more.
Words: Joris Luyendijk
Illustration: Tony Loveless
When I left school, I knew more about Ancient Greece than I did about banking and, until 2011, I spent most of my time writing about the Middle East.
But my ignorance of the banking world — shared by most of the population — changed when I moved to London in 2011 and The Guardian commissioned me to write a blog about banking from a beginner’s perspective. It was a steep learning curve but I was keen to understand what the industry had learnt from the collapse of the banking system, and what improvements could be made for the future.
I quickly realised that few people would want to open up about their experiences on record and so I promised anonymity to anyone who contacted me and agreed to meet up for a chat. Over the next two years, I conducted in-depth interviews with 200 banking professionals at a mid to senior management level, across all aspects of banking in the City, recording the discussions (with their agreement) and transcribing them all.
Contrary to some press coverage of the banking crash, I didn’t meet any ‘Dr Evil’ type characters bent on global destruction, and very few people that were bad company. The characters I sat down with were largely ‘ordinary’ people doing what their jobs demanded of them. Some of them were uncomfortable with what that involved; others weren’t. But what became clear to me from their observations was that many worrying flaws persist in the UK banking system. My book, Swimming With Sharks, explores them in detail — but here are 10 that caught my eye.
The next big financial crash will begin with IT
Of all the assertions I discussed over that two-year period, this was the one that was most widely embraced by those I met.
The UK’s largest banks did not grow slowly and organically, they grew in leaps and bounds by taking over other banks and financial institutions of varying sizes and complexity, spread all over the globe.
The IT systems for these rapidly expanding groups have had to be repeatedly patched up to keep pace with these developments and the changing nature of technology. However, funding for IT is often inadequate because the long-term investment required would undermine the need that banks have to deliver short-term profits to their shareholders.
The vast majority of people I spoke to agreed that the wobbliness and opacity of their systems make the big banks fundamentally vulnerable. And there are plenty of people ready to exploit that vulnerability — recreational hackers, terrorists, even disgruntled ex-employees.
One consultant told me: “The next global financial blow-up will begin with an IT crash.”
It’s true — banks are too big
Banks in the UK and beyond have grown to such a size that it is impossible for the people at the top to know what is really going on. An auditing accountant told me: “As a CEO you can’t understand every single algorithm your bank uses, every product they trade. CEOs get someone telling them: ‘Don’t worry, it’s under control.’”
Those high up know just enough to get by but not enough to know what to do in an emergency.
There’s no such thing as ‘the bank’
One banker told me: “We need to get rid of the idea of ‘the bank’. That term implies a unity of action and purpose, as if there’s an all-encompassing view driving that bank. There is no such thing. What we have is a collection of individuals in positions of power.”
The social anthropologist and journalist Gillian Tett demonstrated this in her book Fool’s Gold. People in banking work in silos, causing crucial information to be blocked rather than circulated. Banks are a collection of clusters of activity. Sometimes these clusters work in isolation from others, and sometimes in conflict with each other.
It’s all about the short term
Another banker said to me: “In my career I have almost never seen anyone trying to build something. There are just cycles of new guys coming in. They put forward a plan promising to make money in three to four years. The pressure is huge, and the easiest way is to take more risk.”
The bonus culture drives short-term gain at the expense of long-term sustainability. The requirement to deliver value to shareholders does the same. And crucially, there is very little job security in some areas of banking. Without job security, you have no loyalty and no continuity.
Excessively complex products should be banned
How many stories have we heard about mis-selling and excessively complex products? Why are banks not subject to the same sort of controls as food or cars or medicine? There are all kinds of synthetic foods that we don’t allow because we don’t know what they do, but in finance we seem to treat the market like a lab rat. We just throw these things in there and only when they explode do we can them.
Complexity shields people from critical scrutiny, and it gets really dangerous when you combine it with zero loyalty and the profit motive.
Some people like the fact that there is a shift away from traders in banks being the old-school, ballsy, wheeler-dealer types towards more geeky types who understand the maths, the data and the technology. But the problem with the maths is that fewer and fewer people understand it.
Regulation doesn’t work
People working for the regulators don’t get paid anything like as much as most of the people they are trying to regulate — and the best ones get hoovered up by the banks anyway. They are always trying to play catch-up, and introducing more red tape doesn’t help because it just makes it more difficult for disruptive Fintech start-ups to provide competition.
Then there are the Big Four auditors. Why would they rock the boat during the auditing process when the banks are such valuable sources of revenue to them? You could say the same about the Magic Circle law firms.
Of course, there are always the internal risk auditors within the banks themselves who may be very hard working and well intentioned. However, given the issues of clusters and complexity outlined above, it is often too easy for some within the banks to outfox them.
And then there are us — the customers. Most of us know very little about banking. As I say, I knew more about Ancient Greece than banking when I left school. So part of the problem is a lack of education.
Banking is amoral
While banks might claim to encourage cultural values with an element of morality, the banking world in general takes an amoral position. The priority is to make money for clients, for shareholders and for the bankers themselves, particularly those in senior positions. Value judgements about ‘right’ and ‘wrong’ don’t come into it. And for many people I spoke to, this made perfect sense — morality complicates a system that is built on logic and process.
Of course, amorality also absolves people of their moral responsibility and is very popular with competitive people. And mathematicians love it because you can play lots of arithmetical games around shareholder value — but stakeholder value is much more difficult to measure.
Unfortunately though, there is no law on earth that offers a perfect fit with reality, especially where activities such as banking cross jurisdictions and technology platforms. There will always be holes to be exploited, and people who are financially motivated to take advantage. And this will always be a problem until banks seriously embrace a moral framework for their employees to work within.
Liability should start at the top
A lot of people suffered when the banks collapsed — including hundreds of thousands of people within the banks who lost their jobs or endured significant stigma for creating something that was entirely beyond their control.
It might have been different if the people at the very top of the banks had expected significant punishment for creating economical and social mayhem.
For instance, if you are the head of a UK bank buying a South American bank, and you know you are going to be held personally accountable for any fallout, you will ensure that a hell of a lot more checks are carried out.
If you want capitalism, you need the possibility of failure
People say that banking is a capitalist, free-market system, but it’s not. Once you reach a certain size as a bank, you can’t fail — the State won’t let you. That’s not a free market.
It’s also extremely difficult to start a new bank — most niches are dominated by three or four large brands.
And while there are plenty of people in banks who are paid to take significant risks, they are not the ones bearing the risks — that comes down to the bondholders, the shareholders and the tax payers.
One banker said to me: “Banking today is like playing Russian roulette with someone else’s head.”
Many bankers deserve a hug
There’s a lot of unacknowledged pain among ex-bankers because everyone gets lumped in together. We make it difficult for bankers to step out of their world because we like to blame individuals and don’t see that the big problem is the system they work in. We need to help them reform the banking world for the benefit of everyone — incredibly hard though that might be — and we need to give some bankers a hug.
The trader who forgot his friends on 9/11
On 11 September 2001, he was working as a trader at a top bank in London. As the first plane hit the towers many people were still thinking, or hoping, that it was an accident. He had a brainwave and called a good friend of his in New York: did he see any other planes or white trails in the sky? If not, the airspace over New York had been closed, meaning the authorities were treating this as a possible terror attack. The sky was blue and empty so, as soon as he could, he started selling stocks in insurance companies, in airlines … Never in his life had he worked so hard as he did on that day and never did he make his bank so much money. The London markets were closing, he did his digital paperwork and only then did it occur to him that he knew people in the Twin Towers. “I had friends who were working there,” he said, almost indignantly. “Until that point, I had not thought of them, not for a second.”
– This is an extract from Swimming With Sharks by Joris Luyendijk
This story is taken from the fourth issue of Poppy.
Based on an interview with Fraser Allen, CEO at White Light Media
This story is taken from the fourth issue of Poppy. Our print run is strictly limited but, if you are based in the UK and work in financial services, you can request a printed copy via the ReadPoppy.com website.