City culture that fuelled credit crunch 'still needs to be tackled'

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The City culture that fuelled the financial crisis still needs to be tackled 10 years on, an expert warned today.

Lord McFall, former chairman of the Treasury Select Committee, called for banks to be more open about bonuses, cultural reforms and their social mission.

“We are already seeing signs of the culture going backwards and therefore delaying the trust that the banks say that they want the public to have in them,” he told The Standard.

On the 10th anniversary of the collapse of Northern Rock, he stressed that there is “unfinished business” on cultural change needed in the financial sector.

“There has been a change in the tone from the top of the UK’s largest banks. But the jury is still out as to whether that culture change is reaching the frontline,” he explained.

The former Labour MP called for bank chiefs to “open the door” on how bonuses are awarded, on cultural reform steps and on their “social mission” – and show how customers are being prioritised.

“There needs to be a focus on driving cultural change down through all levels of the organisations,” he added.

“It is vital that culture change enables employees to feel like they can actually serve their customers’ needs in a better and fairer way and feel as though they are rewarded for doing so.”

He also suggested lessons learned following the financial meltdown could be quickly forgotten, with one expert previously telling the Treasury committee that the “half-life memory in the financial services industry is about three years”.

On whether another financial crisis could erupt, Lord McFall stressed the need for “caution, caution, caution”.

Banks now have significantly more capital to cushion them against blows but the peer warned that dangers still lurk.

“Back in 2007 the banks had total assets 33 times their capital,” he said.

“Well now they only have total assets 20 times their capital – which sounds better but is still very risky.”

Lord McFall, who set up the New City Agenda think tank with Tory MP David Davis and Liberal Democrat Lord Sharkey, highlighted the “excessive optimism” in the financial sector, among regulators and politicians before the meltdown which started in 2007 and plunged the UK into recession.

He stressed that Northern Rock explained at the time that it funded its lending from America, Europe, the Far East, Canada and Australia so if “one market closed” it “would still have access to others” but this failed to save it from collapse.

The peer also warned that now households are saving the lowest proportion of their income since 1963, house prices, particularly in London, are higher than a decade ago, and the buy-to-let mortgage market has ballooned by more than £100 billion.

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