Rebuilding trust - do we really need to demolish first?

I might not be physically at Sibos, but with social media and the power of the web it doesn’t mean one can’t keep up with the debate, albeit virtually.

As I scan through the video recordings on various websites the one that stands out the most for me is  Stephen Hester’s (Group CEO, Royal Bank of Scotland) one-on-one interview with Martin Wolf and the splash on the front page of today’s Sibos Issues detailing the interview.

In addition, I picked up a copy of the Daily Telegraph to read on my commute into the office this morning and read an article covering Mervyn King’s (Governor of the Bank of England) speech to the Buttonwood Gathering in New York where he advises that banks should be broken up.

Both are very topical and I am sure at the forefront of most delegates’ minds as they headed into day 2 that was kicked-off with the “Big Issue Debate 2: Rebuilding trust: Our industry’s response to restoring confidence”. Did you attend?  If so what were your thoughts on the session?

We all know the story of RBS, one of several banks that were bailed-out by the UK Government back in 2008, a long with the likes of Northern Rock and Bradford & Bingley.  Although there was a fundamental difference behind the bailout of the former and Stephen Hester pointed out in his own words “the issues that had weakened the bank did not infect every piece of the bank. They were largely mistakes made at the top layer of management at the bank”.  Whereas the issue that impacted both Northern Rock and Bradford & Bingley was that they were borrowing in the wholesale market and when liquidity evaporated so did their business.

So when Mervyn King speaks of breaking up banks he said "If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not coexist with risky assets." However, even this wouldn’t have saved Northern Rock or Bradford & Bingley.

During his interview, Stephen Hester provided insight into how RBS was starting to rebuild itself. His bank is not going down the path of demolition or a break-up such as Mr. King might suggest, but rather through a strategic realignment that will increase focus upon capital, staff and customers.

When we talk about rebuilding trust I think it comes down to three key stakeholders; the customer, from whom all revenues are typically derived, the regulators and the ability to provide governance and control and  the market where reputational risk impacts the bank’s ability to conduct business. 

Would you agree?  Have I missed anything?