Some banks still don’t know how to behave properly towards their customers

Central Bank verdict is sobering: a decade after the crisis banks are still not focused on the consumer

Are the banks unique? Or is it just the damage that a banking crisis can cause, and the major impact banks can have on people's lives, that mean they must be treated differently? Because this is the only business sector where it is felt necessary to have supervision of "culture". For all their cuddly advertising – young couples lands dream home/buys car or whatever – the banks are still struggling to put the customer first, according to a new report from the Central Bank.

Some of them have still to find their “consumer compass”, we are told. Or, in plain English, they still don’t know how to behave properly towards their customers.

Previously banking supervision was all about dull stuff – balance sheets, capital ratios and lending practices. Now it is becoming also about that much more nebulous factor – people and what drives their decisions. The Netherlands Central Bank has been one of the leaders in this area since the crisis, actively looking at how its bank boards and senior executives work and others have followed.

Banking culture

The UK has also introduced new approaches. And now the Central Bank of Ireland is following suit, putting forward recommendations on Tuesday as part of its report on banking culture, compiled in response to a request from Minister for Finance Paschal Donohoe in the wake of the tracker mortgages scandal.

In terms of the Irish banks, the verdict is sobering, if not surprising . Even after all that has happened, the Central Bank believes that the banks still have a way to go to put their “cultural failings” behind them. They are still not focused enough on the consumer, many are still in “firefighting” mode after the crisis and senior staff often don’t feel able to make decisions. Diversity is lacking and “groupthink” – a lack of challenge to the conventional wisdom – remains a risk.

Still under scrutiny

Isn’t it amazing, when you think about it, and more than a little embarrassing for the bankers, that their culture is still under scrutiny, a decade after the crisis broke? The banks might have been able to plead that their cultural failings were all history, were it not for the tracker mortgage scandal and – just as remarkably – the obfuscation, denial and delay in cleaning the whole thing up. Little wonder the Central Bank concludes that some banks still do not understand what a “customer focus” means for their organisation. All have made progress, the Central Bank finds, but some are moving quicker than others.

Organisational culture can be an odd thing to define and analyse, but let’s not complicate it too much. We are talking about the way people behave and, in banks as in most organisations, that is largely driven from the top. Yes, organisations have their own DNA, their own accepted ways of “doing things”, which new recruits learn from those already in place. But as the string of corporate scandals and controversies we have seen in recent years show, culture is either driven by the board and CEO or they set the goals and then turn a blind eye to how they are achieved. Either way, they are responsible.

Tracker scandal

So what is to be done about the cultural failings in the Irish banks? It is clear that the banks, scrambling to restructure and stabilise after the crisis, let the customer take second place. Or, in the case of the tracker scandal, made deliberate decisions to deprive consumers of tracker mortgages and up their own profits. The Central Bank, meanwhile, was focused on stabilising the sector and largely missed the early stage of the tracker scandal. It was slow to respond, though has caught up in the past few years.

Remarkably, the banks were slow to put their hands up and are now left having to make much bigger repayments and compensation than if they had owned up more quickly. And this is from the gang who are trying to persuade us that they are worth more than €500,000 a year from running what are basically medium-sized institutions largely operating in the Irish market. They have paid €557 million so far in payouts related to the tracker scandal and are facing a total cost of a cool €1 billion. Even for profitable banks, that is real money.


The measures now being proposed by the Central Bank are largely sensible – involving a tightening up of existing rules, more intensive monitoring of cultural issues and more powers to hold senior people accountable, with new legislation to underpin this. It is vital this is a real exercise, rather than annual box-ticking. That said, you would often wonder in Ireland that we would be better off implenting the rules we have, rather than dreaming up new ones.

A move by the banks to establish a new Irish Banking Cultures Board appears little more than an exercise in being seen to “ do something”. Bank boards should know what to do and if they need someone to tell them they can afford to hire some consultants, a new quango will neither be here nor there. The key issues has been the short-term focus of the banking sector.

The bottom line is that it all comes down to people’s behaviour. One way to influence this is through penalties – and we have yet to see any individual banker held to account for the tracker scandal. And some bankers, somewhere, made decisions to do this.

‘Distorting effect’

According to the Netherlands Central Bank in a book on their new approach, “the ripples caused by a pebble thrown into the water have a distorting effect – it is not the pebble that should be held accountable, but the hand that threw it”. Accountability is part of what is needed to change culture and so is smarter regulation. But it all comes back, in the end, to the people at the top. Either they believe that customers should be put first and that this is, ultimately, good for business. Or they don’t. Remarkably, a decade on from the crisis, the jury is still out on whether the banks have really changed.