On Saturday afternoon BBC’s Radio 4 reached the halfway point in a new series looking at what is wrong with British banking and how it might be repaired.
‘Fixing Broken Banking,’ presented by Michael Robinson, is an often wistful look at British banking’s past, present and future.
While the series’ first episode explored the emergence of contemporary British banking stained by scandals and a mechanical drive for efficiency and profit, the second episode, aired on Saturday, showed the personal touch still can thrive and prosper.
‘Fixing Broken Britain’s first episode explored the recent scandal of Payment Protection Insurance (PPI).
Theoretically existing to protect borrowers who find themselves unable to make loan repayments because of unexpected events, PPI was quickly transformed from a form of protection into a hugely profitable form of attack – on the public.
Banks targeted the sick and the self-employed who were never eligible for payout in the first place. Deliberately complicated fine print hid badly structured policies that many were unaware they actually bought. Bank customers handed over up to £5.5 bn per year for the High Street banks at its peak in the mid-2000s.
‘A fire hose of money coming in then going straight out,’ is how one PPI insider describes the practice.
‘I always thought the point of insurance was to protect people,’ says one interviewee. ‘Instead, it became a kind of insurance racket.’
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Radio 4’s ‘Fixing Broken Banking’ places the responsibility for the scandal at the feet of a rotten banking management culture and automation.
A former consultant with McKinsey described how the drive for efficiency saw computers outflank decision-making by local bank employees with a knowledge of their customers.
While the financial regulators finally intervened in the PPI market in 2007 after finding evidence of harm done to consumers, the reputational damage to British banks was already done, Robinson argues.
In the second episode, aired on Saturday, Robinson travels to North England and Germany to find possible remedies for the reputational damage. There he finds banks successfully toiling under the ‘local banking for local people’ banner.
From Cumberland Building Society in Cockermouth to Handelsbanken, a successful new arrival from Sweden which now has 132 British branches; Robinson discovers that small and local can often thrive.
The success of Cumberland Building Society, which reportedly sailed largely unscathed through the financial crisis, is due to it following ‘one of the old rules of banking,’ Robinson says: ‘ Really knowing who you lend to.’
Eschewing the automated lending assessments of High Street banks, banks such as Cumberland and Handelsbanken use trained individuals to decide loan applications.
Travelling to a town in southern Germany, near Stuttgart, Robinson praises another El Dorado of ethical financial services where ‘nearly everybody banks locally.’
‘I’m not allowed to go outside my area to solicit customers,’ says the German local bank manager before adding, ‘I compare it to going to your doctor. You have to take down your pants. It’s the same going to your bank.’
The rationale is simple. While Plato may have written ‘Know Thyself,’ the aphorism to successful modern banking appears to be ‘Know Thy Customer.’
Fixing Broken Banking continues on Saturday 18 August at 12:00.
Written by Will Fitzgibbon of The Bureau of Investigative Journalism.