Head of Lloyds Banking Group calls for transparency

In his Telegraph column, Antonio Horta-Osario, the chief executive of Lloyds Banking Group, called for banks to return to their core values and focus on customers if they are going to be trusted again.

The mechanism he relies on for achieving this is transparency.  Specifically, transparency in the products banks sell.

Mr. Horta-Osario should not limit transparency to only the products that banks sell, but should also apply this to the banks themselves as a bank's certificates of deposit, bonds and equity can be thought of as "products" that the banks sell.

Transparency when it comes to banks is simple.  Banks should provide the level of transparency that they provided in the 1930s when disclosing all of a bank's exposure details was the sign of a bank that could stand on its own two feet.

Why have we ended up in this position? Because, I believe, many banks lost sight of their core values and became complacent, non customer-focused and inefficient. Banks became bloated and grew their cost bases so that they had to chase revenues to outpace cost growth. That meant offering complex products that customers often did not need or understand. 

That is not a sustainable model. 

My view is that the business model for banks has to return to its origins and be focused on customers; provide simpler and more transparent products; and be more efficient so that we can provide these essential services sustainably and with greater value for money. 

The customer must be the reference point for all we do. That includes admitting where we have got it wrong and putting it right as quickly as possible. I made sure that Lloyds did just that in the case of PPI; and we will do the same for any product or customer interactions that were not appropriate in the past. 

And we must prevent mis-selling happening in the future, by designing the right products and by seeing a shift away from sales teams being driven simply by hitting sales targets to really helping customers with their financial needs....

What about manipulating benchmark interest rates like Libor?  Shouldn't that be prevented too?

Alongside cultural change, there needs to be structural change in banking. I believe we should minimise the probability of taxpayers’ money ever being used again to bail-out a failing bank....

Bringing ultra transparency to banking will bring about a significant cultural change.  After all, sunlight is the best disinfectant.

Providing ultra transparency is also the best way to minimize the probability of taxpayers' money ever being used again to bail-out a failing bank.  With ultra transparency, market participants can exert discipline on banks so they don't take risks that would cause them to fail.

If they do fail and the market value of their assets is less than the book value of their liabilities, there is no reason to bail the bank out.

If the bank is able to generate earnings to rebuild its book capital levels, then new management should be brought in to run the bank.

Otherwise, the bank should be resolved.  Resolution should not trigger financial contagion as market participants will have used the information disclosed under ultra transparency in assessing the risk of the bank and adjusted their exposure to what they can afford to lose.

Words, however warm, will not be sufficient on their own to win back public trust. These changes will have to be supported by actions followed by the right outcomes.

Hence the reason that Lloyds should be leading when it comes to providing ultra transparency.