If you are looking for a bit of light reading over the weekend, I can recommend a new two-hundred-and-fifty-page report about Barclays Bank, a venerable British lending institution that, during the past decade or so, has transformed itself into a hard-charging global colossus that competes with the likes of JP Morgan, Goldman Sachs, and Deutsche Bank. (As a matter of local interest, Barclays has its name on the new sports stadium a few blocks from where I live in Brooklyn.)
After narrowly surviving the financial crisis, during which it bought some remnants of Lehman Brothers, Barclays got embroiled in a series of scandals, including efforts to rig a key interest rate, the LIBOR. These scandals, combined with the firm’s generous pay structure, enraged the British public, prompted questions in Parliament, and generally saw Barclays excoriated as a festering example of all that has gone wrong with banking. Last summer, the Barclays board forced out the firm’s chief executive, Bob Diamond, a flashy American who was once a bond trader, and asked a prominent British lawyer, Anthony Salz, to conduct a review of its internal culture and practices.
While couching his conclusions in the understated prose favored by the British establishment, Salz makes no bones about what went wrong: Barclays went Wall Street. It abandoned the ancient values of sound lending and customer service, replacing them with a relentless emphasis on boosting revenues, booking short-term profits, ramping up bonuses, and putting one over on competitors. In Salz’s view, it was the adoption of this avaricious culture that led some Barclays employees to push the boundaries of acceptable behavior in areas ranging from the employment of leverage, to protecting the interests of customers, to being truthful with regulators. “Their focus on short-term return on equity and their competitive position led to a vacuum in culture and values,” Salz told the Financial Times. “Pay policies reinforced that.”
The theory that culture was the problem is an interesting one. It certainly jibes with the popular sentiment that many bankers, particularly investment bankers, are greedy hustlers, with the values of an alley cat and the self-regard of a mediaeval baron. According to Salz, many people who interviewed with Barclays reported “a sense of an entitlement culture.” Top officials at the bank earned more than a third more than their rivals at other banks, and felt they deserved it. Particularly at the investment bank, from where the LIBOR scandal and other public-relations disaster emanated, there was a pervasive win-at-all-costs attitude, which “may have led to the tendency to argue at times for the letter rather than the spirit of the law.”
Read more: Why Do Banks Go Rogue: Bad Culture or Lax Regulation? : The New Yorker
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