Overhauling of banking sector to regain trust

The CEO of DBS, Piyush Gupta, spoke to students and finance professionals about the need to overhaul the banking sector to regain public trust. This call is troubling as it touches only the surface of a major industry where trust was fundamental to its existence.

The banking industry used to be very conservative and operated under some fundamental rules like strong and steady without big risk taking. Today, the industry is the biggest gambler and risk taker in the history of modern finance. The risk the banking sector is taking is many times more than all the casinos in the world combined. A slip is all it needs to bring the world economy down to its knees. It did in the late 1990s and a bigger one is coming as nothing really changes. The gambling gets only bigger and more furious. They need to pay themselves crazy.

What Piyush Gupta said is nothing knew. Jackson Tai, his predecessor, also said more or less the same thing. But it was all words. Who would want to overturn the gravy train when every banker is filling his bank accounts with slush funds and easy money from big stake gamblings, yes, in derivatives and complex derivatives, not forgetting all the insidious dealings in money laundering, in rate fixing and crooked deals etc etc ?

So what, nothing will change and the game will continue as big money needs to be paid to satiate the big appetite of the bankers. How else or where else could they find the money to pay themselves?

At the domestic level Piyush pointed his fingers at ‘…ineffective boards, the outsourcing of risk assessment to rating agencies and the creation of overly complex derivative products.’ But these have been on going for ages. Even the recommendations by SIAS to hang responsibility on boards of directors for wrong doings in their companies were shot down for fear that there will be no directors willing to be directors when they can be found culpable and responsible for wrong doings or frauds under their watch. Can you believe that? All the directors are being paid humongusly and many will form a long queue to be one and some are claiming that there would not be any around if they are made to be accountable for negligent or wrongdoings? Who is kidding who.

As for derivatives and other high risk financial products and instruments, they have become the opiate of the banking industry. Remove the derivatives and funny deals, where are the banks going to bring in the big profits to pay the big salaries? So how?

Piyush called for a code of conduct to regain trust by doing the right and proper thing, by being not only responsible to the shareholders, to themselves but also to the public and society. This is a tall order, an aspiration, but unlikely that something will be done or anything will be done in this vein. The stakes are too high and the profits of banks will fall sharply to ground zero.

The whole banking industry needs a big overhaul. How and who is going to do it?