Lloyds' chief: banks need to be boring

According to a Telegraph article, the chief executive of Lloyds Banking Group has said that banks need to be boring.

If he is serious, then your humble blogger would expect that Lloyds would be the first large banking organization to provide ultra transparency on an ongoing basis.  By disclosing the bank's current asset, liability and off-balance sheet exposure details, market participants can see for themselves that the bank is in fact boring and doesn't have any "interesting" positions.

I expect to hear from Lloyds about implementing ultra transparency as I am a recognized expert in the provision of transparency (please see NAIC white paper on future of securitization) and will let regular readers know when I am contacted.

António Horta-Osório said banks had let the public down by becoming “complacent, non-customer focused and inefficient”. 

Speaking at the CBI Scotland annual dinner, the boss of the 41pc taxpayer-owned bank said: “The banking industry has done itself no favours. Issue by issue and scandal by scandal, the faith and trust in our industry has been eroded.” To restore trust, “the industry must change. We must recast the banking model ... retail and commercial banks should be simple and they should be boring”.

Regular readers know that the only way to restore trust is to provide transparency.  Without transparency, market participants will always have the feeling that Lloyds is hiding something and based on past experience they know that what is being hidden is good for Lloyds and bad for them.

His comments came after the bank revealed earlier this week that it is scrapping bonus schemes which the Financial Services Authority claimed encouraged mis-selling. 

Mr Horta-Osório, who has been Lloyds chief for 18 months, acknowledged that pay had “contributed to the problems the industry has experienced with mis-selling”, saying banks had “focused too much on sales targets”. In future, pay will be “increasingly linked to the long-term performance of the bank ... and capable of being clawed back where decisions turn out to have damaged the bank’s performance or adversely affected customers”....

Previously, your humble blogger wrote about how the zero-sum culture of the trading side of the business played a role in the interest rate swap mis-selling scandal.  Bank customers expect that the bank is looking out for their interest.  Traders only look out for their own interest.  The result is that the traders take advantage of the bank customers.

To demonstrate that Lloyds had already begun to “recast” itself, Mr Horta-Osório said it was “the only bank that supported ring-fencing” to separate high street banking from investment banking, and had been “the first to break ranks” and offer compensation to customers who were mis-sold payment protection insurance. Lloyds has booked a £4.2bn loss for PPI claims.

As I have said, if Lloyd's really is going to recast itself, it will provide ultra transparency.

To ensure the industry remains honest, he urged the new regulator – the Financial Conduct Authority – to have “the courage to take pre-emptive action so we avoid costly and retrospective actions as we saw with PPI”. He also pledged to work with the authorities. 

It should not be up to the regulators to ensure the industry remains honest.  Providing ultra transparency is the first step in embracing a culture of honesty.  When everyone can see what you are doing, sunlight acts as the best disinfectant to bad practices.

If Lloyds is serious, I am easy to contact.  In fact, they can simply leave a comment on this blog.

Throwing down the gauntlet to rivals, he promised to implement the ring-fence “ahead of the current 2019 deadline” and suggested the arrangement could persuade banks to break themselves up. Ring-fencing “will allow shareholders to see if sufficient advantages still exist from the universal model,” he said. “If not, they can demand that they are spun-off.”