Culture shock: the future of UK banking

With the chancellor and the governor of the Bank of England apparently in open disagreement about how the City of London should be regulated in future, Radio 4's Broadcasting House programme brought together five City experts to discuss the issues facing banks and financial institutions.

We asked three basic questions - has the culture of the City changed, how can a greater diversity of people - especially women - be given senior roles at companies, and to what extent is more regulation needed? Here are their thoughts.

"If we became ultra cautious, it would slow economic growth down" Sir Brian Pittman Morgan Stanley "Finance is there to be the servant of the economy, not the master" Gillian Tett Financial Times "More people [at the FSA] and more regulation are not needed" Tony Shearer ex Singer & Friedlander

"I'm afraid we are going to get booms and busts for the next 100, 200 years" Edward Bonham Carter Jupiter Asset Management "If there are two equal people, you clearly pick the woman" Chris Leslie Zygos Partnership

Sir Brian Pittman spent 50 years as a banker, rising to be chairman of the Lloyds TSB Group (now he Lloyds Banking Group). He is currently a senior adviser at Morgan Stanley and holds several non-executive directorship, including with Virgin Atlantic.

On Culture

I certainly believe risk taking has diminished, and that has its own dangers. The City has a dynamic of creating wealth and it would be very dangerous to lose that dynamism. If we became ultra cautious, it would affect economic growth which would slow down. It's a great worry to me that regulation will be so heavy handed that it would affect us adversely.

On hiring

When people leave the very top of the military, they've tremendous experience, managed many people, but if you put their names forward [for board positions], they're not interested. They've never served on a FTSE 100 company [is what I'm told]. We have to cut that down.

The chairman and nominating committees of companies have got to accept that you don't have to serve on a FTSE 100 company. After all, if you have to serve on a FTSE 100 company to get in, the pool is always going to be very small.

On regulation

We've had some rotten apples in the basket and there is a great danger that we'll say: "All the basket is rotten". And its not true. Even if you look at the banks, it's a very small number that have caused this chaos and my concern is that we will have very heavy-handed regulation that will kill a lot of activity in London.

Gillian Tett is an assistant editor at the Financial Times and wrote extensively about the banking activities that have been blamed for the credit crunch before anyone else was paying much attention. She is also the author of Fool's Gold.

On culture

What has changed is that people are asking hard questions about the City and how it operates. And that's important because banking is, frankly, too important to be left to bankers. It's about time that the rest of society looked more closely at how finance operates and it's about time the bankers realised they need to communicate what they're up to the rest of the economy.

Because not only has there been a staggering amount of wealth destruction - and much of that isn't visible yet, tragically - it will only be when people go to get their pensions in a few years and realise the scale of that wealth destruction.

But also bankers forgot the fundamental adage of what the point of their industry is - that finance is there to be the servant of the economy, not the master, and for most of the last decade or two that relationship has been the wrong way round.

On hiring

You can't blame many institutions, frankly. There is a very small pool and that's all about trying to teach girls confidence, which really starts in school.

On regulation

Anyone who thinks that new rules alone are going to clean up the problem are kidding themselves because almost every bit of innovation that has come out of the financial industry in the last century has been in response to a previous set of rules.

Systems need to be introduced to nip bubbles in the bud. We can monitor what's happening and try and jump in at an earlier stage to stop it getting out of control.

Edward Bonham Carter is head of Jupiter Asset Management, which has almost £17bn under management and controls funds for a variety of organisations including charities, local authorities and government organisations.

On culture

I'm afraid we are going to get booms and busts for the next 100, 200 years and yes, there are some things we can do to deal with the amplitude of cycles.

But we have to accept, if we have a capitalist system, that prices of both goods and assets are going to get materially out of whack with their fair value - both above and below - because that's what you get when you have human beings.

On hiring

I'm a meritocrat at heart so whether people are men, women, black, white shouldn't be an issue. The question is whether the system is designed to encourage people from different backgrounds who have common sense outside the banking system.

But you are trying to overcome tribal prejudice in the sense that people are naturally more inclined to hire people that they see as similar in thinking.

Chris Leslie works for the Zygos Partnership, an executive search firm that specialises in placing people on the boards of companies.

On culture

The bonus system is definitely changing, as it should because it's been one of the causes [of the financial crisis], this very short term nature with very little downside and very huge upside that really result in people looking to take risks.

Some banks are now looking at putting incentive schemes in that will actually be paid more in shares. There is a definite move towards that.

On hiring

In terms of non-executive directors, quite often we are asked specifically to look for a minority. In other occasions, they would expect to see at least one woman on the shortlist of four candidates for a non-executive director.

I believe fundamentally that you should pick the right person, but if there are two equal people, you clearly pick the woman. Most large companies are looking to broaden the diversity on their boards and are taking steps to do that.

Tony Shearer is the former chief executive of Singer and Friedlander Bank before it was bought by the Kaupthing Icelandic bank in 2005. He warned the FSA against approving the purchase, and the bank subsequently collapsed in 2008. He now holds several non-executive directorships.

On culture

The financial consequences of what we've seen over the past year are massive and not yet apparent. And because the cost is presently hidden means these issues are not being debated as much as they should. One financial adviser came out with some figures a month ago.

In 1989, a 45 year old would have been advised to put aside £200 per month to their pension. And 20 years later i.e. now, that 45 year old should have had a pension pot of £200,000 and a pension of £32,000 per year. Actually they would have a pension pot of £100,000 and a pension of £7,000 per annum.

And what depresses me about this is that it's not being properly debated and that's partly because there isn't the political leadership that wants these issues properly exposed, because they don't want people pointed to where things have gone wrong because of their own culpability.

On regulation

More people [at the FSA] and more regulation are not needed. All the issues we have seen over the past year could have been followed with existing regulation. What was needed was smarter people.

There are countries where the regulation has been more successful than ours - Canada, South Africa, Australia - and there is little discussion of that [within the FSA]. It's the lack of people wanting to learn the lessons, because so many of them are still there in senior roles.

We need to stop this move towards more regulation and focus on quality of fewer people.

You can listen to this edition of Broadcasting house through its website.

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