The purpose of a retail and commercial bank is to support the economy.
That may sound obvious but is something that banks over recent years have forgotten. The result of that has been that the real economy businesses, households, individuals have lost trust in banks.
Why have we ended up in this position? Because, I believe, many banks lost sight of their core values and became complacent, non customer-focused and inefficient. Banks became bloated and grew their cost bases so that they had to chase revenues to outpace cost growth. That meant offering complex products that customers often did not need or understand.
That is not a sustainable model. My view is that the business model for banks has to return to its origins and be focused on customers; provide simpler and more transparent products; and be more efficient so that we can provide these essential services sustainably and with greater value for money.
The customer must be the reference point for all we do. That includes admitting where we have got it wrong and putting it right as quickly as possible. I made sure that Lloyds did just that in the case of PPI; and we will do the same for any product or customer interactions that were not appropriate in the past.
And we must prevent mis-selling happening in the future, by designing the right products and by seeing a shift away from sales teams being driven simply by hitting sales targets to really helping customers with their financial needs.
Lloyds was the first bank to break ranks and offer compensation on PPI, but it was the right thing to do for customers. I stand by that decision. I also believe that the rules for claims management companies need to change so that customers rather than claims management companies are the real beneficiaries of the compensation process and banks do not waste resources on groundless complaints.
A “free” option for these CMCs to complain, regardless of whether a claim is bogus, cannot be in the interests of UK society.
Alongside cultural change, there needs to be structural change in banking. I believe we should minimise the probability of taxpayers’ money ever being used again to bail-out a failing bank. In this context, financial stability will be greatly enhanced from an ex-ante separation of retail and investment banks.
That is why I fully support ring-fencing as the right way forward. It is right for the economy because it will ensure safer, more stable retail banks without having to further increase the capital and/or liquidity requirements. It is also right for investors.
Given customers prefer a single point of contact, it will allow investors to consider if the non-ring-fenced function adds real value to an overall group and, if not, they can ask the banks to divest it.
Words, however warm, will not be sufficient on their own to win back public trust. These changes will have to be supported by actions followed by the right outcomes. In particular, banks must support UK businesses and help to create jobs.
That is why I made sure that Lloyds was the first bank to access the Funding for Lending Scheme (FLS) and why we have a major advertising campaign focusing on the scheme to ensure clients know we are keen to support them.
We will pass on the benefits of this lower funding in full to the real economy. In particular, we are focusing that lending on first-time buyers, small businesses and manufacturers areas where it will make the most economic impact.
Our future and that of the UK economy are inextricably linked. Being the largest bank in the UK’s retail and commercial banking segments, we know we have a special responsibility in helping Britain prosper, and given that there are no strong banks without a healthy economy, we are also doing the right thing for our shareholders in making this happen.
Our commitment to nurturing UK business is also seen in our CSR (Berlin: CSR.BE - news) activities where we are the largest financial services investor in UK communities; and specifically in the Lloyds TSB Enterprise Awards, which are now in their second year. In partnership with the Telegraph Group, we are searching for young business talent across the UK and for businesses with a real potential to grow and that stand out in their sector.
I want Lloyds to “help Britain prosper”. That is our ambition, and by achieving it we can rebuild the pride in what we do and really show the positive contribution we can make for local people, communities, businesses and ultimately to the British taxpayer.