Law-obsessed banks need ‘radical cultural change’, regulator says

Central Bank deputy governor urges banks to start putting customers first

Central Bank deputy governor Ed Sibley

Central Bank deputy governor Ed Sibley


Central Bank deputy governor Ed Sibley said on Friday that Irish banks, currently in the midst of a tracker-mortgage scandal, need a “radical cultural change” as the industry is more preoccupied by the legality of its actions than the interests of customers.

“Leading up to the onset of the crisis, the prevailing culture in the banking system resulted in a collective groupthink failure, an excessive build-up of heavily correlated risks, and disregard for customers,” Mr Sibley said at a Banking and Payments Federation Ireland conference in Dublin.

“In too many banks today, I see an overly legalistic approach that focuses too much on whether something is legal or not and not sufficiently on the outcomes – either for the long-term safety and soundness of the bank or the interests of the consumer.”

The comments come in a week that the Central Bank revealed that some banks are still refusing, two years into an industry-wide review, to acknowledge a “substantial” number of customers who, regulators believe, were denied the right over the past decade to mortgages linked to the European Central Bank rate. The number of acknowledged cases rose 23 per cent in the six months to 13,000 at the end of September.

Central Bank officials faced strong criticism from TDs and Senators at an Oireachtas finance committee hearing on the tracker controversy on Thursday, as Central Bank governor Philip Lane said his staff were relying largely on “moral suasion” to prompt lenders to draw a line under the issue.

Catastrophic failings

New laws enacted in the middle of 2013 giving the Central Bank the power to order banks to refund overcharged customers are of little use to the regulator. Much of the problem stems from 2008, when banks’ own funding costs were spiralling and they were sought to limit their number of borrowers on low-yielding tracker rates.

“There are numerous examples where if problems were recognised and accepted at the time they were first raised, the outcome and costs to both the firm and its customers could have been materially lower, through earlier acceptance of the problem and prevention or earlier fixing of the problem,” said Sibley.

“It has led to catastrophic failings in dealing with customers impacted by the tracker mortgage scandal, which has done further lasting damage to the reputation of the Irish banking sector.”

While increased regulation has made the global banking sector safer since the onset of the crisis, the industry “has consistently failed its customers over the last decade”, Mr Sibley told the audience of bankers.

“For those who complain about the pendulum swinging too far, and of overprescriptive regulation, I would ask: what have you done to restore trust in the system? What have you done to drive permanent and robust change in the culture of the banking system, so that it can be trusted not to fail, to hold sufficient capital, to manage risk effectively, and to put your customers first?”