Opinion: Poor banking culture is bad for our health

Banks need to be serious about their social licence to operate.

19april poor banking culture hero default

The social and economic costs of bank and insurance failures are severe, causing stress and ill health, unemployment, and reducing quality of life.

Keeping the financial system sound and efficient is an important part of the Reserve Bank’s job, and the effectiveness of our work rests partly on the conduct and culture of the banks we regulate and supervise.

Culture and staff conduct are important indicators of how well run and safe a bank is likely to be, and that starts at the top of the organisation with the board and senior management.

A bank that has a high regard for customers and their needs is likely to also have a high regard for being safe and sustainable in the long term. Culture and staff conduct are important indicators of how well run and safe a bank is likely to be, and that starts at the top of the organisation with the board and senior management.

Last year, the Reserve Bank and Financial Markets Authority jointly reviewed the conduct and culture of the 11 main banks. We found a few isolated instances of poor conduct by bank staff but not widespread misconduct or poor culture. However, we did find that banks’ capability and systems were not good at identifying, and then managing, poor behaviour. This review took four months; with 391 interviews covering more than 500 bank staff in 13 towns and cities, including directors, managers and front line workers. We also did a customer survey and talked to consumer advocacy groups, bank workers’ unions, the Banking Ombudsman and the New Zealand Bankers’ Association.

We followed up with a similar review of 16 life insurance firms and found significant weaknesses across conduct and culture governance. All the banks and insurers have been given feedback about the gaps in their systems and each must report to regulators with action plans to address the issues identified in the reviews.

Our latest work to reduce the likelihood of a bank failure is a proposal to increase the amount of capital that bank owners need to leave in their business. The proposal aims to make bank failures less likely and ensure owners absorb a greater share of any loss if a bank gets into difficulty.

While some people may think that banks are all the same and can name only a few of them, New Zealand has 20 registered banks, with 11 of them making up 99 percent of the retail banking market. If a customer isn’t happy and their bank doesn’t fix the issue, then we encourage them to shop around for a better deal or better service. Customers also have the option to formally complain to the Banking Ombudsman.

Banks need to be serious about their social licence to operate, work with a customer-first lens, and play their part in contributing to a sustainable economy. This means making choices about how they run their business with that in mind.

Our Bank Financial Strength Dashboard helps consumers compare all New Zealand banks. It shows key measures about each bank at a glance. The dashboard has been popular, with several thousand visits a month since its launch.

Our work in all of these areas reflects the change in societal and consumer expectations of financial institutions. Regulatory expectations have also shifted. Banks need to be serious about their social licence to operate, work with a customer-first lens, and play their part in contributing to a sustainable economy. This means making choices about how they run their business with that in mind. We expect banks and insurers to lead and model good customer-focussed behaviour and invest in the staff and systems to run a business that is safe and sustainable over the long term.

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About the Reserve Bank: The Reserve Bank is a government agency that regulates banks, insurers and non-bank deposit takers; issues banknotes and coins; runs the inter-bank payment and settlement system; uses monetary policy to manage inflation; and manages about $25 billion of NZ’s foreign reserves.

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