Sunday 18 March 2018

Widespread cash hoarding indicates collapse of trust

From the top down, the focus now must be on customers to revive bank fortunes, writes Brian Hayes

Early one Sunday morning last year, while going through Dublin Airport, I met Louis Copeland just outside his shop. I asked him why was he in the airport so early on a weekend, on the shop floor as it were. His reply was simple and obvious. "It's my business, I need to know what's going on."

There you have it. A businessman who actually wants to know what's going on in his business.

Irish bankers could learn a lot from Louis Copeland. When did you last see members of the board of AIB or the grandly named court of Bank of Ireland actually meeting their customers? Top bankers need to get back to basics.

I know bankers are battered and bruised, but now is the time for real leadership from the directors and senior managers of our banks. I would like to see a return to a more traditional banking style, where local branch managers and their teams and their relationship with their personal and business customers are central. I would like to see directors and senior managers down at branch level on a regular basis, engaging with their customers.

The British hit comedy of the Seventies, Dad's Army, depicted a local bank manager by the name of Captain Mainwaring. He was a pillar of society, dependable, upright but most importantly he knew what was going on and who to invest in.

Public service and running a tight operation for his bank in the south of England were two sides of the one coin. You trusted the bank to make the right decision because you knew and, well, trusted Captain Mainwaring. That type of trust is in short supply right now.

Trust and confidence are the foundations of any banking system. In January of this year, according to the Edelman Trust Barometer, public trust in Irish banks was at a rock-bottom six per cent. Other indicators also point to low levels of confidence in financial institutions. The outflow of retail deposits from the Irish banking system in recent years is a direct consequence of the collapse of trust in our banks.

The latest stress test imposed on the Irish banks was extremely severe. It was carried out by BlackRock Solutions and supervised by Boston Consulting. Both of these organisations have strong international reputations. Once the Irish banks are fully recapitalised in line with the new guidelines -- provision has been made for an additional €24bn -- they will have higher levels of capital than many Swiss banks. The banks will be restructured and loans under €20m will not now be transferred to Nama. This means there will be no further losses for the banks from Nama-bound loans. This, together with a renewed commitment from the ECB, should reassure individuals and business that their deposits are safe.

Now the banks must provide credit and concentrate their activities in the Irish economy, redirecting their energies away from property onto other areas of the economy. The taxpayer has done the heavy lifting on behalf of the banks.

There is now a huge responsibility on the banks to repair their tattered reputations and regain the trust and confidence of their customers. The focus of the banks must be on their customers. Direction and leadership in this regard must come from the boards and senior managers. I appreciate that morale among bank staff may be low and that the self-confidence of many bankers has been undermined. But now is not the time for navel-gazing or self-pity. Now is the time to move on and get credit working in the real economy.

Each of the two big banks employ more than 10,000 people. These large workforces must now be motivated and energised for the task ahead -- turning our banks into dynamic, successful and profitable companies once again.

The Irish taxpayer has the right to demand that the banks now deliver. It's now time for the "herd" to move back in the direction of traditional banking where prudence, common sense and knowing one's customers actually matters.

Large organisations, like banks, need to encourage a questioning attitude and proper debate at all levels. It is the responsibility of the board and senior managers to develop a culture of openness in any organisation. The chairman of the board has a particular responsibility in this regard.

As well as a flight of wholesale deposits, there has been a haemorrhaging of retail deposits by individuals and Irish businesses. As a matter of urgency the banks must now implement an effective strategy for recovering lost deposits and winning new ones.

In addition to the flow of Irish capital to foreign banks, there is strong anecdotal evidence of substantial amounts of cash being held outside the banking system altogether. This widespread hoarding of cash is a very recent development in Ireland. It is, of course, a clear indicator of a collapse of trust. If people don't trust banks, they don't believe their deposits are safe.

The banks need to go after this mattress money and get it back into the system where it can earn a decent interest rate, improve the liquidity of the banks and where it can be put to good use by helping the economy return to growth.

It certainly hasn't been easy being a banker or a bank employee in recent years. The banks have done great damage to this country. The banks that will survive can redeem themselves by operating to the highest standards. Perhaps as customers we also need to help in the recovery process and be supportive of local bank staff. The bank manager and his staff must know their customers and engage with them in a direct and supportive manner. They must be embedded in their local communities and in the local business environment.

Brian Hayes TD is Minister of State at the Department of Finance

Sunday Independent

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