How banks can win public trust back

25 August 2017

A bank's claim that "trust is critical to our business" sits very awkwardly with its recent track record, writes Professor David Kinley for the ABC.

A person using a paywave card. Image: iStock

Our trust in banks is too valuable a commodity to be squandered, writes Professor David Kinley. Image: iStock


Commonwealth Bank has released its corporate responsibility report, chock-full of good deeds: advancing gender equity in its employment policies; promoting ethical and transparent business practices; supporting environmentally friendly investment; and fostering financial literacy in kids.

The report claims to represent the bank's heart and soul. "Trust," it declares, "is critical to our business and we work hard to deliver value, not just to our customers and shareholders but also to the communities that we are a part of."

Yet this sentiment sits awkwardly with the bank still reeling from revelations of multiple breaches of money-laundering laws and the systematic overcharging of many of its poorest customers. And these are just the latest in a long list of misconduct charges made against the Commonwealth Bank and other Australian banks.

Trust in the financial sector in Australia and elsewhere has plummeted. Barely 50 per cent of the general public worldwide now trust banks — the worst score of any major industry sector, according to the Edelman Trust Barometer.

Banking's double standards are, well, standard these days. So while we might applaud JPMorgan Chase CEO Jamie Dimon scolding President Donald Trump's inadequate response to events in Charlottesville, when he wrote, "there is no room for equivocation here: the evil on display by these perpetrators should be condemned", we frown when learning his bank has weathered a staggering US$40 billion in fines and settlementsfor criminal behaviour relating to the global financial crisis.

We may also be comforted to hear HSBC "is guided by" international human rights laws in its work, but recoil upon hearing the bank was fined US$1.9 billion for laundering the proceeds of terrorists and drug dealers in Mexico, and faced further charges of facilitating widespread tax fraud in Switzerland.

Finance is a service industry after all. A servant of society, not its master.
Professor David Kinley, Sydney Law School

They are delivering apparently genuine expressions of social conscience, while at the same time maintaining such dreadful records of anti-social behaviour.

The simple answer is that a social conscience is not the core business of banking. The noble works typically found in banks' "corporate social responsibility" or "environmental, social and governance" reports are tangential — neither financially significant compared to the rest of a bank's operations, nor focused on its staple diet of pricing financial risk.

Social and environmental perspectives do not represent the intrinsic sentiments of banks and bankers, no matter their occasional professions to the contrary.

The prevailing culture in finance marches to a different tune — one of making money by managing and manipulating risk, and doing so as free as possible from government interference.

In this regard they have been spectacularly successful, especially in the decades leading up to the 2007/8 financial crisis. Bankers and other already-wealthy elites profited enormously during these boom years.

To the extent financial institutions were required to justify their self-serving behaviour, they did so by pointing to the trickle down benefits the rest of society enjoyed.

When the trickle abruptly stopped with the GFC, and funds started to flow in the opposite direction — from public coffers into private pockets — one might have expected a cultural reformation.

But there was no chastening; no jail time for big bankers; no stemming the tide of financiers' claims their industry is a special case, too big and too important to be shackled by wider social concerns.

And yet it is the very size and importance of the finance sector to both the economy and society that demands it be fashioned in ways that benefit society as a whole, not just the privileged few.

Resisting calls for greater public scrutiny because it would be bad for private business (as Commonwealth Bank's Ian Narev argued before a parliamentary committee earlier this year) is to entirely miss the point of the public/private relationship.

And for Wall Street to urge loosening of constraints placed on banks barely 10 years after the global financial crisis is, in the words of US Federal Reserve vice-chairman Stanley Fischer in a Financial Times interview last week, "extremely dangerous and extremely short-sighted".

Our trust in banks is too valuable a commodity to be squandered. Finance's potential to advance the lives of individuals and whole communities is enormous, of which the Commonwealth's CSR report is a welcome, if modest, example.

The key to exploiting this potential, however, is not to have good deeds paraded in reports on the periphery of banking, but rather to have them established as its raison d'etre.

The fact that presently there is no legal requirement banks act only in the best interests of their clients and customers (how many of us know that?) is signal enough how necessary it is for us to make that change happen.

Professor David Kinley is Chair of Human Rights Law. His book, Necessary Evil: How to Fix Finance by Saving Human Rights, will be published in February 2018.

This article was first published by the ABC as 'How banks can win our trust back (and it's not through good deeds)'

Luke O'Neill

Media and Public Relations Adviser (Humanities and Social Sciences)

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