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With Libor fixing, the surprise is that anyone was surprised

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Recent debacles in banking from various insurance mis-selling scandals (payment protection and interest rate swaps), on-going IT failures (Natwest) and Libor fixing (Barclays, the first of many), have been the natural conclusion of unfettered evolution in financial services that has been taking place since financial deregulation in 1986. Simon Leadbetter explores the inexorable rise of unethical banking and suggests it is time to do some ruthless fettering.

Banks perform a vital task in any liberal economy. They look after savers’ deposits far more effectively than stuffing cash under a mattress (no really), and then invest or lend this money wisely to earn a return for their depositors. This is retail banking and where most people’s experience with banking starts and ends.

Without the borrowing and investment that banking enables, many people would not be able to buy their homes, start or grow businesses and our economy would be a shadow of the sixth largest economy in the world that it is today. Those prudent savers who attack ‘reckless’ borrowers are attacking the very people who pay them a return and grow our economy through consumption, entrepreneurship and innovation.

Banks perform a vital task in any liberal economy

The ecosystem of banking contained many banks, building societies, mutual, friendly societies and credit unions (although an evolving group of four or five banks have dominated the current account market since first world war). The Building Societies Act 1986 allowed building societies to convert into banks. Consolidation rapidly occurred and none of the demutualised building societies remains as a standalone bank today. A sad loss when you consider that the remaining mutuals have not been heaped with the opprobrium of banks in recent years.

What was apparent to mainstream bankers after Big Bang, the 27th October 1986 when the London Stock Exchange rules were relaxed, was that simply lending and investing deposits in safe financial vehicles was a labour intensive business generating marginal returns. Investment banking, gambling on commodities, stocks, bonds, property, currency and derivatives, offered far higher returns albeit with far higher risk.

The solution was simple; close local branches and encourage telephone then online banking, outsource the more mundane operations of the bank such as dealing with customers and allow technology to replace humans, centralise operations and sack thousands of low paid banking workers, to massively lower the cost of the boring retail operation. Management time, the main scarcity in banking as they have plenty of money, could then be devoted to growing the far more exciting investment banking world.

At the same time, loss-making current account holders could be turned to profit if they could be charged exorbitant fees, aggressively sold cheap credit linked to payment protection and several other dubious financial products. Low or average income customers were to be treated like cattle and prodded every now and then to get them to go in the right direction. Personal service was reserved for those who had wealth to invest, that could feed the speculative machine.

Greed, for want of a better word, is good

Gradually the speculative financial markets became disconnected to the definite real markets. For every dollar traded in the real world, £26 is traded on speculative markets. Once it became possible to make digital money betting on the performance of gambles that speculated on the performance of further bets that occasionally had a real outcome, the vital role of retail banking in the non-financial economy was sidelined.

Gradually the speculative financial markets became disconnected to the definite real markets

The relentless bailing out of the banking sector from 2007 to date has removed any moral hazard from bankers who now know that profits from their gambling activities are theirs to keep and losses are nationalised. Markets operate in an atmosphere of fear and greed. In the current era of greed, quantitative easing and bailouts, the fear has gone entirely. A perfectly rational investment banker can still afford to take massive risks as they are using other people’s money, there is no personal risk and any downside is almost certain to be underwritten by the taxpayer.

Tragically, government and opposition parties lack the moral authority to sit in judgement of a financial service sector that lobbies them extensively (to the tune of £93m according to a July report by the Bureau of Investigative Journalism) and pays their bills (50% of Conservative funds come from the City). Nearly one in seven members of the House of Lords has paid connections with the financial sector.

But we desperately need retail banks that behave honestly, with integrity and practice plain talking – the founding principles of Barclays. We need them to lend to small businesses and households.  We need them to be part of the communities in which they work so that they can understand and meet the needs of local markets, where most of our trade takes place.

We desperately need retail banks that behave honestly, with integrity and practice plain talking

The time for endless inquiries is over and that uncommon quality, common sense, must prevail. The solutions are simple.

– Crime is crime whatever the colour of a collar, so white collar bankers who have profited through deception must be given exemplary criminal sentences, just as looters were after the summer riots 2011. Personal assets must be seized to repay those that have suffered. Those guilty of a financial crime should not profit in any way. Final responsibility rests at board level so there should be no scapegoating to more junior ranks – if this means a wholesale prosecution and clearing out of boardrooms, so be it. The current cohort of directors have shown little aptitude in developing an ethical banking culture beneath them

– Retail banking plays a vital role in our economy, so investment banking must be separated from retail banking before the next election. If a retail bank fails it should be nationalised. Shareholder will take a far more aggressive role if their investment is on the line. If an investment bank fails, it should be allowed to fail

– Competition works, so big banks must be broken up more aggressively than is currently proposed to encourage far greater competition – an initial limit of 750 branches and 10% market share in current accounts would be a start – both limits would only affect the top four. It is essential that this encourages innovative new entrants rather than the growth of incumbents. This may be painful initially, but an independent commission could ensure that the banks are broken up in a way that ensures national coverage rather than cherry picking of the most affluent areas

– Sunlight is the greatest disinfectant, so there should be significantly greater transparency and public oversight with a well-staffed, well-funded regulator with uncompromising attitude and statutory investigative powers to root out financial crime and unethical behaviour

– Ever more complex regulation isn’t the solution, so financial rules need to be simplified, setting out principles of honest banking rather than the lawyer’s paradise that the current loophole-ridden system represents

In July, we will explore banking in more detail in our Guide to Sustainable Banking. In the meantime, we recommend that you read our Guide to Sustainable Investment. It explores how you can use your money to do more good and less harm, delivering a return for you and vital investment for companies that balance the needs of the planet, its people and prosperity.

Further reading:

Diamond faces grilling from parliament as public fights back

Bob Diamonds are not forever

Why I switched to ethical banking

Interest in ethical options surges amid UK banking melee

Simon Leadbetter is the founder and publisher of Blue & Green Tomorrow. He has held senior roles at Northcliffe, The Daily Telegraph, Santander, Barclaycard, AXA, Prudential and Fidelity. In 2004, he founded a marketing agency that worked amongst others with The Guardian, Vodafone, E.On and Liverpool Victoria. He sold this agency in 2006 and as Chief Marketing Officer for two VC-backed start-ups launched the online platform Cleantech Intelligence (which underpinned the The Guardian’s Cleantech 100) and StrategyEye Cleantech. Most recently, he was Marketing Director of Emap, the UK’s largest B2B publisher, and the founder of Blue & Green Communications Limited.

Editors Choice

2017 Was the Most Expensive Year Ever for U.S. Natural Disaster Damage

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Natural Disaster Damage
Shutterstock / By Droidworker | https://www.shutterstock.com/g/droidworker

Devastating natural disasters dominated last year’s headlines and made many wonder how the affected areas could ever recover. According to data from the U.S. National Oceanic and Atmospheric Administration (NOAA), the storms and other weather events that caused the destruction were extremely costly.

Specifically, the natural disasters recorded last year caused so much damage that the associated losses made 2017 the most expensive year on record in the 38-year history of keeping such data. The following are several reasons that 2017 made headlines for this notorious distinction.

Over a Dozen Events With Losses Totalling More Than $1 Billion Each

The NOAA reports that in total, the recorded losses equaled $306 billion, which is $90 billion more than the amount associated with 2005, the previous record holder. One of the primary reasons the dollar amount climbed so high last year is that 16 individual events cost more than $1 billion each.

Global Warming Contributed to Hurricane Harvey

Hurricane Harvey, one of two Category-4 hurricanes that made landfall in 2017, was a particularly expensive natural disaster. Nearly 800,000 people needed assistance after the storm. Hurricane Harvey alone cost $125 billion, with some estimates even higher than that. So far, the only hurricane more expensive than Harvey was Katrina.

Before Hurricane Harvey hit, scientists speculated climate change could make it worse. They discussed how rising ocean temperatures make hurricanes more intense, and warmer atmospheres have higher amounts of water vapor, causing larger rainfall totals.

Since then, a new study published in “Environmental Research Letters” confirmed climate change was indeed a factor that gave Hurricane Harvey more power. It found environmental conditions associated with global warming made the storm more severe and increase the likelihood of similar events.

That same study also compared today’s storms with ones from 1900. It found that compared to those earlier weather phenomena, Hurricane Harvey’s rainfall was 15 percent more intense and three times as likely to happen now versus in 1900.

Warming oceans are one of the contributing factors. Specifically, the ocean’s surface temperature associated with the region where Hurricane Harvey quickly transformed from a tropical storm into a Category 4 hurricane has become about 1 degree Fahrenheit warmer over the past few decades.

Michael Mann, a climatologist from Penn State University, believes that due to a relationship known as the Clausius-Clapeyron equation, there was about 3-5 percent more moisture in the air, which caused more rain. To complicate matters even more, global warming made sea levels rise by more than 6 inches in the Houston area over the past few decades. Mann also believes global warming caused the stationery summer weather patterns that made Hurricane Harvey stop moving and saturate the area with rain. Mann clarifies although global warming didn’t cause Hurricane Harvey as a whole, it exacerbated several factors of the storm.

Also, statistics collected by the Environmental Protection Agency (EPA) from 1901-2015 found the precipitation levels in the contiguous 48 states had gone up by 0.17 inches per decade. The EPA notes the increase is expected because rainfall totals tend to go up as the Earth’s surface temperatures rise and additional evaporation occurs.

The EPA’s measurements about surface temperature indicate for the same timespan mentioned above for precipitation, the temperatures have gotten 0.14 Fahrenheit hotter per decade. Also, although the global surface temperature went up by 0.15 Fahrenheit during the same period, the temperature rise has been faster in the United States compared to the rest of the world since the 1970s.

Severe Storms Cause a Loss of Productivity

Many people don’t immediately think of one important factor when discussing the aftermath of natural disasters: the adverse impact on productivity. Businesses and members of the workforce in Houston, Miami and other cities hit by Hurricanes Harvey and Irma suffered losses that may total between $150-200 billion when both damage and sacrificed productivity are accounted for, according to estimates from Moody’s Analytics.

Some workers who decide to leave their homes before storms arrive delay returning after the immediate danger has passed. As a result of their absences, a labor-force shortage may occur. News sources posted stories highlighting that the Houston area might not have enough construction workers to handle necessary rebuilding efforts after Hurricane Harvey.

It’s not hard to imagine the impact heavy storms could have on business operations. However, companies that offer goods to help people prepare for hurricanes and similar disasters often find the market wants what they provide. While watching the paths of current storms, people tend to recall storms that took place years ago and see them as reminders to get prepared for what could happen.

Longer and More Disastrous Wildfires Require More Resources to Fight

The wildfires that ripped through millions of acres in the western region of the United States this year also made substantial contributions to the 2017 disaster-related expenses. The U.S. Forest Service, which is within the U.S. Department of Agriculture, reported 2017 as its costliest year ever and saw total expenditures exceeding $2 billion.

The agency anticipates the costs will grow, especially when they take past data into account. In 1995, the U.S. Forest Service spent 16 percent of its annual budget for wildfire-fighting costs, but in 2015, the amount ballooned to 52 percent. The sheer number of wildfires last year didn’t help matters either. Between January 1 and November 24 last year, 54,858 fires broke out.

2017: Among the Three Hottest Years Recorded

People cause the majority of wildfires, but climate change acts as another notable contributor. In addition to affecting hurricane intensity, rising temperatures help fires spread and make them harder to extinguish.

Data collected by the National Interagency Fire Center and published by the EPA highlighted a correlation between the largest wildfires and the warmest years on record. The extent of damage caused by wildfires has gotten worse since the 1980s, but became particularly severe starting in 2000 during a period characterized by some of the warmest years the U.S. ever recorded.

Things haven’t changed for the better, either. In mid-December of 2017, the World Meteorological Organization released a statement announcing the year would likely end as one of the three warmest years ever recorded. A notable finding since the group looks at global land and ocean temperature, not just statistics associated with the United States.

Not all the most financially impactful weather events in 2017 were hurricanes and wildfires. Some of the other issues that cost over $1 billion included a hailstorm in Colorado, tornados in several regions of the U.S. and substantial flooding throughout Missouri and Arkansas.

Although numerous factors gave these natural disasters momentum, scientists know climate change was a defining force — a reality that should worry just about everyone.

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Environment

How to be More eco-Responsible in 2018

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eco-responsible
Shutterstock / By KENG MERRY Paper Art | https://www.shutterstock.com/g/kengmerrymikeymelody

Nowadays, more and more people are talking about being more eco-responsible. There is a constant growth of information regarding the importance of being aware of ecological issues and the methods of using eco-friendly necessities on daily basis.

Have you been considering becoming more eco-responsible after the New Year? If so, here are some useful tips that could help you make the difference in the following year:

1. Energy – produce it, save it

If you’re building a house or planning to expand your living space, think before deciding on the final square footage. Maybe you don’t really need that much space. Unnecessary square footage will force you to spend more building materials, but it will also result in having to use extra heating, air-conditioning, and electricity in it.

It’s even better if you seek professional help to reduce energy consumption. An energy audit can provide you some great piece of advice on how to save on your energy bills.

While buying appliances such as a refrigerator or a dishwasher, make sure they have “Energy Star” label on, as it means they are energy-efficient.

energy efficient

Shutterstock Licensed Photo – By My Life Graphic

Regarding the production of energy, you can power your home with renewable energy. The most common way is to install rooftop solar panels. They can be used for producing electricity, as well as heat for the house. If powering the whole home is a big step for you, try with solar oven then – they trap the sunlight in order to heat food! Solar air conditioning is another interesting thing to try out – instead of providing you with heat, it cools your house!

2. Don’t be just another tourist

Think about the environment, as well your own enjoyment – try not to travel too far, as most forms of transport contribute to the climate change. Choose the most environmentally friendly means of transport that you can, as well as environmentally friendly accommodation. If you can go to a destination that is being recommended as an eco-travel destination – even better! Interesting countries such as Zambia, Vietnam or Nicaragua are among these destinations that are famous for its sustainability efforts.

3. Let your beauty be also eco-friendly

eco-friendly

Shutterstock / By Khakimullin Aleksandr

We all want to look beautiful. Unfortunately, sometimes (or very often) it comes with a price. Cruelty-free cosmetics are making its way on the world market but be careful with the labels – just because it says a product hasn’t been tested on animals, it doesn’t  mean that some of the product’s ingredients haven’t been tested on some poor animal.

To be sure which companies definitely stay away from the cruel testing on animals, check PETA Bunny list of cosmetic companies just to make sure which ones are truly and completely cruelty-free.

It’s also important if a brand uses toxic ingredients. Brands such as Tata Harper Skincare or Dr Bronner’s use only organic ingredients and biodegradable packaging, as well as being cruelty-free. Of course, this list is longer, so you’ll have to do some online research.

4. Know thy recycling

People often make mistakes while wanting to do something good for the environment. For example, plastic grocery bags, take-out containers, paper coffee cups and shredded paper cannot be recycled in your curb for many reasons, so don’t throw them into recycling bins. The same applies to pizza boxes, household glass, ceramics, and pottery – whether they are contaminated by grease or difficult to recycle, they just can’t go through the usual recycling process.

People usually forget to do is to rinse plastic and metal containers – they always have some residue, so be thorough. Also, bottle caps are allowed, too, so don’t separate them from the bottles. However, yard waste isn’t recyclable, so any yard waste or junk you are unsure of – just contact rubbish removal services instead of piling it up in public containers or in your own yard.

5. Fashion can be both eco-friendly and cool

Believe it or not, there are actually places where you can buy clothes that are eco-friendly, sustainable, as well as ethical. And they look cool, too! Companies like Everlane are very transparent about where their clothes are manufactured and how the price is set. PACT is another great company that uses non-GMO, organic cotton and non-toxic dyes for their clothing, while simultaneously using renewable energy factories. Soko is a company that uses natural and recycled materials in making their clothes and jewelry.

All in all

The truth is – being eco-responsible can be done in many ways. There are tons of small things we could change when it comes to our habits that would make a positive influence on the environment. The point is to start doing research on things that can be done by every person and it can start with the only thing that person has the control of – their own household.

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