The foundation of trust created by banks such as JP Morgan and Goldman Sachs, has taken a real battering lately as a result of sub-prime loans, collateralised debt obligations and credit default swaps.
The last two years especially, have taken their toll on consumer faith in the banking system. This is entirely understandable given the fact that we have seen whole countries descend into financial chaos and even bankruptcy, with some even having their sovereignty
rating downgraded – as has been the case with Spain, Greece and very nearly the UK.
As such, now more than ever banks need to act to regain and bolster trust, and to do this they need to be transparent. There are a number of ways they can go about doing this.
Be proactive in communication to stakeholders:
The culture of keeping their cards close to their chest is no longer acceptable when it comes to a banks finances. Given what has happened recently, banks need to be completely transparent and keep stakeholders apprised of their finances to re-assure them
that they are in the best fiscal health possible. Furthermore, stakeholders are keener than ever to be made aware of the key business decisions being made which could impact this, so that they know what is going on and be reassured that the business is being
competently run.
Publish financial information and make it easily accessible:
In keeping with the spirit of openness, banks need to make their liquidity, credit and market risk information available to consumers, regulators and stakeholders – as well as to various banking partners who will want to know how beneficial a partnership
with an organisation is, and what the counterparty risks are likely to be. Only by being completely open can banks start rebuilding this trust, but more importantly the system-wide trust, which is essential for the financial eco-system to succeed and regain
its former solidarity and strength.
Support the business with the right infrastructure:
Ultimately, the success of a transparency initiative hinges largely on technology. Real time liquidity and management systems are a must, as are systems which can effectively measure systemic and interbank risk. As more banks participate and release their
information, such risk will be easier to calculate and track online. The development of a reporting system and information dissemination process would be the final piece in this transparency puzzle, allowing information to be easily reported and interpreted
in a consumer friendly format.
Confidence in the banking industry takes years to build and seconds to destroy. As such, now more than ever, banks need to act to regain market confidence and re-build lost trust. Not only should they publish these results but they need to make sure they
are continually re-enforcing the positive messages and communicating them to the market. Banks need to shout their successes from the rooftops and discuss their results and financial standings, so stakeholders and consumers know that the industry is in good
shape and in no danger of falling victim to another financial crisis.
In today’s world a handshake from a leading financial institution is no longer enough, information needs to be harnessed and used to drive the transparency and credibility required to sustain trust; and this can only be done by having the right systems in
place to provide the necessary insight.