Banking Review

Transparency is the new black in banking

Banks need to refocus on their essential social and economic functions if they are to rebuild trust in the eyes of the public, argued the head of the UK’s Financial Services Authority in September. Lord Turner also called for a return to basics, rather than “over-complex products of no real use to humanity”.

It’s a message that seems to be resonating with the industry, with tentative steps being made to simplify messages and fee structures.

ANZ has put simplicity at the heart of its new branding strategy, but only time will tell if it is able to deliver on the promise. The bank’s decision to remove 27 fees on personal accounts was necessary and goes part of the way, but more interesting is the admission from ANZ head of brand Louise Eyres that: “Unless we could be transparent about it (the fee), we removed it”.

It seems transparency is the new black in banking – it’s getting airplay in Bank of America’s latest ad campaign, with the bank also extending its “Clarity Commitment” – a one-page summary of key loan terms designed to let borrowers review their loan details in plain language, to its entire range of credit products.

Unfortunately, banks in the US face an uphill battle to restore their credibility as questions are asked about how bailout money is being spent, and the US Government probes executive salaries and bonuses.

In the November/December issue of Retail Banking Review (out Friday), we investigate how the CEO remuneration of Australia’s leading retail banks compares to others in the region and globally, and the trend towards more long-term performance incentives. Our leading bankers are paid very well, with ANZ CEO Mike Smith leading the pack.

Earlier this year, the Australian Government asked the Productivity Commission to examine the remuneration of Australia’s top executives and directors. Discussion about executive salaries is expected to continue into 2010, following the likely December release of the Productivity Commission’s final report.

The Australian Bankers’ Association says there is no evidence in Australia to suggest executive salaries have contributed to excessive risk-taking and are inconsistent with performance. But in a global environment where less than one in three people trust the banking industry (Datamonitor), improved transparency of bonuses and other incentives is inevitable and necessary if the industry is to successfully improve its image.

Last month car maker BMW decided to arrest the widening remuneration gap by linking the bonuses of its top managers to those of its assembly line workers. In this issue of Retail Banking Review, Elton Cane argues perhaps if banks want to truly demonstrate a sustainable and reasonable approach to executive remuneration, they could bring the humble teller or branch manager into the equation too.

What do you think? Salaries may be frozen now, but should they be entirely restructured? What metrics or benchmarks should banking salaries be tied to? Will salary changes help restore faith in the industry in the eyes of the public?