GE Money
Thousands of finance jobs at risk, says Broderick
Issued : 7 July 2009
Thousands of jobs are under threat in the financial services sector, according to Larry Broderick of IBOA The Finance Union. Expressing concern that the recent round of 750 redundancies at Ulster Bank could be repeated in other financial institutions, Mr. Broderick said that up to five thousand jobs could be under threat from a combination of opportunistic cost-cutting by senior management and consolidation within the banking sector.
The IBOA General Secretary urged the Government, which now has considerable financial - as well as moral - influence over the banking industry to ensure that banks operate in the longer-term public interest rather than continuing with the short-sighted policies which has created the financial crisis.
"In their anxiety to pay off the State's investment as quickly as possible in order to avoid further Government intervention, there is a real danger that these major financial institutions will adopt short-term knee-jerk responses at the expense of their staff and customers - rather than taking a smooth gradual path to recovery which would ultimately offer greater stability all round.
"It would represent a very poor return on the State's investment of billions of euro if these financial giants repaid the taxpayer's generosity by adding thousands more workers to the unemployment register and, as a result, put further pressure on the public finances to provide additional social welfare benefits.
"Our members were not responsible for the reckless policies that have exacerbated the impact of the global economic downturn. Our members did not precipitate the culture of greed which has fuelled these reckless policies - indeed we have consistently warned against it. Nor were our members responsible for the over-indulgent fiscal policies which continued to inflate the property bubble long past its sell-by date.
"But our members are paying for this crisis in terms of reduced living standards and increased pressure from corporate leaders who may soon replace reckless loans to property developers with an even more reckless assault on the jobs of their employees. These moves are being contemplated even though most of our major institutions continue to make profits on their day-to-day operations.
"Many system failures have contributed to the current crisis in the financial services sector. But it is clear that one of the most culpable has been the seriously flawed regulatory mechanism which was supposed to protect us from the corporate hysteria which caused the current crisis. Both the Financial Services Agency in Britain and the Financial Services Regulatory Authority in Ireland have been exposed as highly ineffective.
"They stand exposed for their lack of real power to take action. In the Republic, for example, the regulatory authority is divided between two bodies - the Central Bank and ISFRA - with the result that neither has been able to do the job properly. They stand exposed for their lack of will to take action - the so-called 'light' touch which meant that financial institutions were not held to account in any meaningful way. They also stand exposed for the far too cosy relationship with the leading players in the sector. Senior figures in the regulatory authorities on these islands have been seen to be insufficiently distant from the financial institutions they are supposed to police.
"But the reform of regulation is not simply a matter of changing a few faces at the top and re-arranging the office accommodation. It needs to address some fundamental problems which have been exposed during the current crisis.
First of all the authorities need the power to regulate a whole range of financial institutions which currently operate on the fringes as a virtual parallel banking system. These include hedge funds, investment banks, private equity funds, off-balance sheet business and mortgage brokers.
"We also need a reform of accounting rules for banks which would set a higher capital requirement in the good times so that they are sufficiently buttressed against the downturn - whenever it eventually comes. We need new regulation to simplify securitized financial products and derivatives so that all risks attaching to them are shown in the accounts.
"One of the most telling revelation in the exchanges earlier this year between the House of Commons Finance Committee and the four men who led RBS and HBOS to the brink of destruction was about derivatives. When they were asked if they actually understood how these financial instruments worked, three of the four admitted they did not - while the fourth was extremely hesitant. Sir Fred 'the Shred' Goodwin from RBS was almost defiant in his ignorance declaring that was not really his job - even though, of course, it was a critical factor in RBS's over-exposure to the sub-prime mortgage market in America.
"That leads onto the next element of regulatory reform - the application of more rigorous "fit and proper" criteria for senior management and boards of financial institutions. While recent British experience may have raised doubts about the suitability of some of the figures who have led the sector in recent times, the Irish experience has been in a different league - and for the worse not better - in which the actions of a few individuals have resulted in major reputational damage to the Irish banking industry on the international stage as well as to their own institutions (and when I say "their own" I mean it because some of these people seemed to treat the institutions as if they were their own private piggy banks).
"Finally, the new regulatory remit should reflect a major shift in the culture of corporate governance in the financial services sector which will prioritise the long-term stability of the institution and of the banking industry as a whole rather than the pursuit of maximizing share-holder value in the short term. It must also restore the traditional banking virtues of credit quality and prudence over the scramble for a quick profit."
