Barclays 2009 Annual Report Download - page 22

20 Barclays PLC Annual Report 2009 www.barclays.com/annualreport09
The role of banks and banking in society
The severity of the current financial crisis and
the magnitude of public support that has been
channelled into the financial sector have
prompted a heated debate about the role,
scale and usefulness of banks. In this article from
The Sunday Telegraph, John Varley provides a
summary of how we have responded.
My belief is that the work of banks is important to the economies of the
world; and is therefore important to society. But with that role goes the
obligation to conduct our business responsibly and to support economic
progress.
Most customers that I speak to say that they want to get back on track,
to move forward again and to put the recession behind them. They want
their bank to focus on providing them with the means to build opportunity,
security and a better future. And they want their bank to put its strength
and resources at their disposal in a way that is at once helpful and prudent.
To them, that’s what ‘supporting economic progress’ means.
The causes behind the financial crisis are complex and have already
been well rehearsed. The industry has much to be sorry for, and, as the chief
executive of a big bank, I have expressed sorrow and regret for the errors that
we, as a sector, made. Without decisive, determined and significant action to
restore confidence by authorities around the world, including here in the UK,
the banking system would have collapsed. Even those banks that did not
take capital from governments clearly benefited (and continue to benefit)
from these actions. We are grateful for them, and our behaviour should
acknowledge that benefit.
The task of governments, regulators and banks alike is to learn the
lessons of the last two years and to ensure that nothing like this happens
again. Decisions have to be taken about the banking industry that will
influence its shape and direction over the next 30 years – decisions relating
to capital, funding and liquidity, leverage, provisioning, accounting and
compensation. We have already seen considerable change since the start
of the crisis: banks are much better capitalised; leverage is down materially;
liquidity buffers have increased; risk management practices have been
strengthened. But there will be more change.
This means there is an important and difficult trade-off to be
engineered between improving the stability of the financial system on the
one hand and stimulating and supporting economic growth on the other. As
policy-makers strive to get the balance right, we should not lose sight of the
fact that, no matter how painful this crisis, the world is in a much better place
today than it was 30 years ago. Over that period, even having taken into
account the impact of the current recession, the net growth in global GDP
is well above 120%, representing a real per capita increase of more than
40%. That growth lifted millions of people around the world out of poverty
and gave billions of people a better life. The benefit has been felt as much in
the developing world as the developed. Maintaining it, and continuing to
make people’s lives better because of it, requires change, but judicious
change. And that includes the requirement that we, the banks, define our
core purpose in a way that people understand and support.
Banks contribute to society through five core activities: providing
reliable and efficient payment systems; delivering safe storage (for deposits
and savings); maturity transformation (or the conversion of savings into
loans); asset management; and what is loosely referred to as investment
banking.
The core activities of an investment bank
Some question the utility of investment banking. I want to explore the
point here for a moment. What lies behind the question is the presumption
that investment banking is ‘gambling’. But it is clear to me that the three core
activities of an investment bank – advice, execution and funding,
each of which I describe below (note that proprietary trading is not a core
function) – are critical to the health of the real economy, because those
activities are aimed at helping clients generate the real economy outputs
of investment, trade, wealth generation, and employment. Investment
banks are vital intermediaries in the economic system – connecting sources
of funds with investment opportunities. History shows that healthy global
GDP growth requires funding support from the capital markets.
I’ll illustrate. A list of some clients on whose behalf Barclays Capital, our
own investment bank, has been active recently (a matter of public record)
does not reveal names that you would associate with gambling. These
include Her Majesty’s Government; The Kingdom of Spain; The Republic
of France; The Republic of South Africa; Roche; Pfizer; Sainsbury’s; British
Telecom; Vodafone; Novartis; Centrica; EDF; London Stock Exchange;
John Lewis; Network Rail; Harvard University and General Electric.
These governments and companies are no more involved in gambling
than we are gambling by serving them. They represent the real economy.
We support them with their financing and risk management needs which,
in turn, drive economic growth. While I have cited household names, the
companies we serve in the area of financing and risk management include