It is ten years this weekend since the fall of Lehman Brothers signaled the single biggest corporate failure in history, sending the global financial market into crisis – and we’ve been paying the price since. In fact, according to a new report from the Institute for Fiscal Studies the UK economy is now 16 per cent smaller today than it would have been had it kept growing at its pre-crisis rate – or in layman’s terms (excuse the pun) we have lost £300 billion.
In the decade since those fateful weeks in autumn 2008, regulators have been busy ushering in new capital reserve requirements, drafting regulation and introducing ring-fencing rules, but have the lessons been learnt?
Are we actually any better prepared for another crisis?
From a capitalisation standpoint, yes. Liquidity reforms and stress testing under the Basel III framework has undoubtedly made the sector much more resilient to withstand another crisis. And the new ring-fencing rules better protect consumers from riskier practices of investment banks.
But one could argue that the underlying signs are still there. The global economy – as a whole – is still heavily reliant on debt, fuelled by low interest rates and stagnant wages. Subprime mortgages may well be resigned to the history books, but the debt-laden culture remains. Now more than ever.
What about trust?
In the aftermath of the crisis many people described the banking sector, as a self-interested and bloated industry that rewarded risk and profiteering at the public’s expense – and some would protest that still rings true. Since then, the industry has weathered countless scandals, from PPI to Libor fixing to rogue traders and FX rigging, and has sought to restore trust by cleaning up its act.
On trust, too much has been written about its decline and stall in recovery, but to really understand how financial brands can re-connect with consumers, we instead need to focus what really drives reputation in the sector.
FleishmanHillard’s propriety ‘Authenticity Gap’ research, which measures consumer expectations against experience, has revealed that reputational drivers around better value, customer care and innovation make up 60% of peoples’ expectations of banks. Of these three, banks are paying too much attention to innovation – which probably isn’t surprising given the focus for many of the biggest financial institutions has been on responding to the growing threat from disruptive new entrants and harnessing the power of data.
Former Barclays CEO Anthony Jenkins recently suggested that “digitization and technology is now the biggest threat to banks’ going as far as predicting that half of jobs in financial services could disappear over the next decade.
While it is true that technology will likely eradicate many traditional back office functions and the rise of digital banking is questioning the need for a vast branch network, customer care remains essential. In fact people still have enormously high expectations – five times higher than innovation – and banks are drastically falling short on this customer care metric, worse than any industry or sector we studied.
At its core, banking is, and probably always will be, about relationships.
Ten years ago a lot of people at the big banks forgot that. And while they may have well weathered the storm of the global financial crash, without a focus on customer care, and authentic communications, the sheen off innovation will soon wear off – potentially plunging them into another existential crisis they may not recover from.
Ludo Baynham-Herd, Corporate & Financial Communications