I recently went to watch The Big Short at the cinema, and found it fascinating.
For those that haven’t heard of it, The Big Short is a film about the crisis in the US housing market in 2007 that led to the credit crunch here in the UK, and the subsequent recession. It’s told from the point of view of four groups who saw the crisis coming several years before it actually hit, and these groups effectively bet on the housing market crashing and made a fortune when it happened. The theme running through the film is that the bankers in the US were too arrogant (or just stupid) to acknowledge that a crash was even a possibility, let alone that it may have been a near certainty. For anybody working in financial services, it’s highly recommended viewing.
The very same day that I saw this film, I read an article in the Independent that revealed that five of the new challenger banks are being run by former executives of RBS who were serving under Fred Goodwin in the run-up to its collapse. While you would expect these challenger banks to have a good amount of previous banking experience within their make-up, the dominance of Goodwin’s former lieutenants could lead to questions about how much the leadership of the UK’s banking industry has changed.
More worrying, is the fact that this revelation comes just a few short months after the FCA cancelled its investigation into banking culture, without an adequate explanation of why.
It should be noted that none of the challenger bank bosses has faced any disciplinary action from regulators, nor is there any suggestion of any wrongdoing by any of them during their time at RBS. It does, however, feel like a case of, to quote an old Who song, “Meet the new boss, same as the old boss”.
Those of us giving advice during the credit crunch will remember how it impacted us. Mortgage lending dried up almost overnight, and most customers blamed us for it. We were often the ones that had to deal with their distress when the house purchase fell through because the mortgage lenders withdrew access to mortgage funds.
And shortly after that came the PPI scandal, the financial cost of which many of us in the advice sector are still bearing today, despite both the Office of Fair Trading and regulator finding few issues with sales of PPI through the broking channel. It was, of course, the banks who were guilty of most of PPI mis-selling. However, Financial Ombudsman fees and the costs of dealing with numerous unfounded complaints sent in by claims management companies fell on brokers in a way that was completely out of proportion to the problems found in that market.
This latest revelation about the leadership of certain challenger banks does make me wonder, are we driving headlong into another financial crisis, with Goodwin’s former charges giving directions, while our regulator is asleep at the wheel?