9 Point Plan For Transforming The Banking Industry

The banking industry needs to be transformed in order to save it from itself. Despite the protestations of governments, regulators, public and the media that change can only come from within (spare us another thousand useless regulations). Here is how it should be done.

Another banking scandal, another inquiry, another band-aid and so we will continue until the next scandal, another inquiry and another band-aid. It is a depressingly familiar sequence of events.

The problem is that while governments, politicians and regulators are beginning to realize that transforming banks is about values and culture they still believe that that transformation can be legislated and/or regulated.

This blog has stated several times that transforming the industry can only be accomplished from within and that it must recognize the human issues and behaviors involved. The plan below consists of a series of assertions, 9 in total, as well as the rationale for these assertions.

The proposed transformation is comprehensive in that it covers every aspect of the human ecosystem within which banks operate; managers, employees, customers, suppliers and the wider community, the environment within which they operate and the behaviors which motivate them.

This is why the transformation is described as a human transformation and the transformed entity is known as The Human Asset Bank. This is what banks must do and preferably sooner rather than later.

The Human Asset Bank

1.  Mission and Values that have Real Meaning and Purpose

Our organization is an ecosystem of human assets—employees, managers, customers, suppliers and the community. These human assets are motivated by our mission and guided by our values.

Our mission and values have real meaning and purpose. They are the primary sources of inspiration, collaboration and innovation within our human ecosystem, and thus are the basis on which we achieve both economic and competitive sustainability. While we maintain a properly functioning system of governance and controls, it is our mission and values that ensure that we always do the right thing.


Google’s mission is “to organize the world’s information and make it universally accessible and useful” and it supports this with values such as “you can make money without doing evil”. These are very clear statements by which Google defines its relationship with the rest of the world and is the basis on which it engages and motivates its people to get out of bed every day to go to work and make a difference.

In contrast, a review of the mission and values of several major banks on both sides of the Atlantic shows that they all mention the same niceties about teamwork, professionalism and liking their customers—but nothing profound. Moreover, the statements are all so similar that it is almost impossible to differentiate one bank from another—except perhaps for Lehman Brothers which had a naked appeal to shareholder capitalism.

Why is this so important and what does it tell us about banks?

The first thing this tells is that banks are yet to determine or at the very least clearly articulate in words that are meaningful to all concerned, what it is they stand for and what value they intend to add to society.

Secondly, because it is almost impossible to distinguish the purpose of one bank from another, it explains their often lemming-like behavior in pursuit of products and markets. This latter point is critical in understanding how financial crises, from LDC debt to junk bonds and subprime mortgages, actually develop—and that is by way of a herd mentality.

Defining a mission and a set of values that is unique, has real purpose and meaning to managers and employees and which consistently engages and motivates them to do the right thing, and is the necessary first step in effecting a complete human transformation.

Once the mission and values are embedded how the organization does things and why it does them assume new meaning as they become the bedrock and driving force behind all its actions and thus it relationship with customers, suppliers and the wider community.

Eventually, the how and the why of the organization become of even greater importance than the result, especially in the short term and by so doing, they provide the basis for economic and competitive sustainability in the long term.

This then facilitates the determination of what products and which markets to pursue as well as what products and which markets to avoid, something that banks have been singularly unable to do. This would reduce the tendency towards unrestrained and uncoordinated growth which is a primary cause of TBTF.

Once implemented, the right mission and values provide the foundation for effecting transformation throughout the entire human ecosystem that constitutes the organization.

2.  Exemplary Leadership and Management

Management’s primary responsibility is to exemplify and reinforce the mission and values. In the long term that is the basis on which management and the organization will be assessed.

In pursuit of their responsibility management will work to develop, integrate, and sustain the organization’s human ecosystem. This includes a commitment to never growing the organization beyond a scope and size which would diminish management’s ability to excel in that duty.


Banks have established governance structures which are the means by which they exercise control and identify and manage risk. These structures are directly supported by a vast army of people in such functions as product control, financial control, internal audit, external audit, compliance, risk, credit, SOX and operational risk.

In addition to the above, senior and middle-level managers spend their entire working day moving from one meeting to the next in an attempt to cover all eventualities. Finally, there are so many guidelines, policies and procedures that if you were to place them in a stack they would reach all the way to the moon.

Yet, when taken together, all of these were not, are not and will not ever be enough to safeguard against another financial crisis or even ensure that LIBOR or any other rate is never manipulated—neither will more legislation, more regulation, more governance and more controls.

Management in large and complex banks can no longer rely on traditional governance and control functions to identify, capture and resolve every possible issue. This is simply not possible because the control functions cannot cope. Unfortunately, too many people are of the misguided opinion that they should but having worked in several of these control functions myself I know that this is no longer possible.

The only way to address this deficiency is by having a mission and set of values that when put in place guide the actions of each and every individual. The mission and values of a fully transformed bank or one undergoing transformation must become more important than the controls.

Consequently, in such an organization, the most important role of management is to embrace exemplify and reinforce the mission and values. This then becomes the primary basis on which all managers are incentivized and rewarded—an area where banks have systematically failed to get it right.

Such an approach to management also facilitates a strategy of not growing the organization beyond their ability to perform their duty—a primary cause of TBTF and related snafus.

In this regard bankers can draw on the experiences on Toyota as this is the specific approach that organization took in developing its world famous Lean Production.

3.  Individual Employees, Individual Leaders

We do not hire robots and we abhor perverse incentives. Our aim is to engage, motivate, and develop every single employee in accordance with the mission and values such that they become a leader in their own right and fully contribute to sustaining the organization.


The UBS rogue trader, Barclays’ LIBOR scandal and Goldman Sachs’ emails about how badly they treated their clients—incidents which are not just an indictment of values but which are also notable for the fact that employees were not sufficiently motivated to report their suspicions and/or concerns.

The above examples specifically support the ideal that values are more important than controls. The transformation of banks can only be complete if every individual employee embraces this maxim and takes responsibility for ensuring that everyone else does too.

This is not just about crises and scandals. It goes to the very heart of how banks need to be managed each and every day. For example, anyone who has spent time in a banking control function such as internal audit will have in the course of their career come across many instances where employees are performing procedures that no longer apply. This is because the banking industry is both complex and dynamic —meaning the landscape, the rules and the challenges are changing all the time and the policies and procedures recently signed-off by management may no longer apply.

In such an environment even if management is totally values-focused, it is simply not capable of identifying and rectifying every single eventuality. It is therefore imperative that every single employee becomes a leader and take the initiative as and when required.

However, employees will only rise to that challenge if the mission and values speak to them personally, if they believe, if they are incentivized to live the values, if they are proud of what they are doing and if they are also proud of the organization’s performance. That is what is meant by a human transformation.

4.  Flexible and Responsive Network of Employees

Our employees constitute a flexible and responsive network for both enhancing performance and reducing risks. That network is strongly influenced and guided by our mission and values.


Banks have a tendency to operate in organizational silos which precludes proper coordination of activities. Further, control functions are generally not properly integrated despite the best efforts of governance structures.

This increases the risk of failure at both the strategic and operational levels. While crises and scandals arise from poor behavior, they are often facilitated by the fact that things fall through the cracks.

It is thus imperative that employees work in teams where everyone is responsible not only for their own actions but in addition for the actions of their team as well as the actions of other teams. Such a unity of purpose can only be achieved by having a mission and set of values which are inclusive, meaningful and proudly shared by all employees—not just a few.

Unfortunately, there are many within the industry today who are neither proud of nor believe in its values and this is certain to impact both performance and the management of risk.

5.  Committed to the Long-Term Interests of our Customers

Our success will be measured, in part, by the utility of our products and services to our customers in both the short and long term. As such, we will ensure that our mission and values are embedded within our sales teams and that said teams continuously share and practice them with our customers.


It is hard to imagine an industry that has abused its customers more. One appalling aspect of the subprime crisis was the way in which banks seduced customers into taking on mortgages they ultimately could not afford, only to later foreclose on those mortgages and kick those same customers out of their houses.

This was short-termism at its very worst.

Both wholesale and retail customers have suffered at the hands of their banks and this tells us that the long term interest of the customer is definitely not embedded within the value sets of these organizations.

Another galling aspect of this whole episode is the fact that minorities were far and away the people most affected by these actions but that never stopped banks from touting their equal opportunity credentials.

This incongruity highlights the continuing failure of CSR and the way in which it produces schizophrenic organizations where warm words are divorced from strategic reality. Every failing, failed or bailed-out bank had a nice CSR policy but these were of no use because the stated intentions were not central to the bank’s strategy.

A human transformation with a revamp and reset of the mission and values within banks means that the interests of customers are central to the strategy and not tucked away in a CSR policy. This must by definition include a commitment to the long term interest of customers, greater levels of transparency and only selling products to customers that they understand.

6.  Engaging Suppliers Who Share Our Values

We fully recognize that the quality of our customer products, services, and solutions are entirely dependent on the quality of purchased inputs. As a consequence we will only engage those suppliers who understand and are willing to assist us in our mission and share in our values.


The subprime crisis arose from two aspects of the banking supplier chain that suffered spectacular failures due to very poor values.

The first is that the supply of mortgages for securitization originated with unlicensed brokers and smaller banks that made either very poor credit decisions or committed outright fraud. The second is that the larger banks would not have accepted these loans for securitization had the agencies not supplied ratings which in no way reflected the reality of the mortgage market.

The human transformation of banks can only be truly complete if they ensure that the suppliers of products and services either adhere to or adopt a mission and set of values which are consistent with their own.

7.  Streamlined and Efficient Systems and Processes

We will consistently work to develop efficient and effective systems and processes in order to safeguard the integrity and stability of the financial system.

We have also made a sincere commitment to work with other banks, financial institutions, and regulators to improve the efficiency and effectiveness of the systems and processes within the industry. Our aim is to reduce the level of risk and complexity in our own operations as well as the level of systemic risks within the financial markets. We will further endeavor to maintain an organization structure that is both simple and transparent in order to facilitate the free flow of information and improved risk management.


The recent failure of the payments systems at RBS/NatWest was a surprise to many. In truth the only real surprise is that such calamities do not occur more frequently.

If one were to look at a diagram of the IT systems of a major bank it would look like a bowl of spaghetti with Chinese noodles and some seaweed thrown in for good measure. Many IT staff and those who know better would perhaps tell you that these systems are often held together by a piece of string which under normal circumstances is perilously close to its breaking point.

The fact is that IT systems, operational processes and organization structures in large banks have become unwieldy, unmanageable, unreliable and in some respects unauditable. They represent a significant risk to not only the banks but also to national and global economies.

The primary reasons for this state of affairs are TBTF, product complexity, organizational complexity an ever increasing number of regulations and the relatively low levels of system standardization and rationalization across the industry.

Banks that undergo a human transformation will adopt a mission and set of values that will ensure that their systems and processes are consistent with the commitments they make to their employees, managers, customers, suppliers and the wider community.

8.  Masters of our External Environment

Mastering our external environment and not succumbing to economic and mathematically precise orthodoxies is crucial to the long-term sustainability of our organization.

We will develop independent and objective assessments of our external environment. Without exception, our actions and activities will always be guided by our mission and values and we reject opportunistic and short-term maximization of profits as a mode of operation.


Financial crises are almost always preceded by a Fiendish Orthodoxy—a situation where academics, regulators, governments, politicians, central bankers and banks all align themselves with the same belief system. This creates an echo chamber which cripples objective thinking until after the fact, at which time everyone else turns on the banks and asks; “what have you done?”

The history of the Fiendish Orthodoxy is almost too embarrassing to put in writing but here are a few examples from the hall of shame:

  • The former CEO of Citibank, Walter Wriston, proudly declared that countries don’t go bust—then Mexico went bust followed by Brazil and all the other LDC countries.
  • In the 1990s when dotcoms were born just about any company that had a website was deemed to be another Microsoft in the making—we ended up with dotbombs.
  • In 2007, just a year before the financial crisis, Gordon Brown famously congratulated the City on entering “an era that history will record as the beginning of a new golden age for the City of London”, and
  • In that same year, Ben Bernanke described the US economy in terms that were later referred to in the New York Times as the “Goldilocks Economy”.
  • Before the European credit crisis it was almost universally acknowledged that EU countries don’t go bust.

We can add to these pillars of modern finance such as MM Theory and Portfolio Theory.

The human transformation of banks means breaking away from Fiendish Orthodoxy and avoiding the echo chamber. The best way to achieve this is by having a mission and set of values that facilitate independence of both thought and action.

9.  Aligned with the Human Imperatives of the Community

We consider the maintenance of the integrity and stability of the financial system both a privilege and a public duty.

We recognize that there is a symbiotic relationship between the success with which we perform our public duty and the sustainability of our organization. Further, in performing our public duty we will also ensure that our interaction with governments will always be open and transparent.


The importance of banks to our financial and economic well-being requires no further explanation. Banks must therefore embrace their public responsibility as a matter of course. There are however specific issues that need to be addressed including that of lobbying and the relationship between banks, regulators and governments.

Banks in the UK lobbied for a “light touch” regime during the Labour Administration of the 2000s.  That light touch regulation eventually became a very heavy financial burden.

In 2004, the big five US brokerages, Morgan Stanley, Merrill Lynch, Lehman Brothers, Goldman Sachs and Bear Stearns all lobbied the SEC to overturn what is known as the “net capital rule” which would provide them latitude to take on more risks. Three of those banks no longer exist as independent entities.

Lobbying is therefore not a particularly worthwhile endeavor yet banks still persist—they should reconsider. In addition, it weighs very heavily on the public trust.

There is also the issue of the revolving door between banks on the one hand and governments, regulators and central bank on the other. There is no question that this greatly contributes to Fiendish Orthodoxies.

The human transformation of banks into organizations that are in harmony with the wider society means that there must exercise greater openness and transparency in their dealings with governments.

Jonathan Ledwidge is the author of the book Clearing The Bull: The Financial Crisis and Why Banks Need a Human Transformation. Use this link to give your opinion on the performance of banks post the financial crisis.


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