Banks behaving badly deliver less value

Banking Governance & Culture Report Series:

Part 1 (of 10).

The FT reports today how most of the US banks, who were at the centre of the Global Financial Crisis and continued behaving badly in its wake, have now passed a ‘stress test’. Our analysis shows that it is time to apply a very different test – MI’s test of maximum societal value – for which we have developed the specific measure of Total Stakeholder Value (TSV)*.

Using only a narrowly framed test of financial strength, the world’s banking regulators are short-changing society as MI’s latest Report into Banking Governance & Culture now reveals. In this first part of a short series from the 65-page report it is very obvious just how much short-changing is taking place. Here is the first extract from our comprehensive analysis.

Across the 21 banks on this project the combined, operating income in excess of $250 billion is the result of a generally low maturity level across the sector. This can be improved significantly. Our experience and evidence shows companies with such low levels have the potential to generate a 5-10% point operating margin improvement. If the entire group of 20 achieved the 50% operating margin of top-rated Handelsbanken it would double current operating income levels to $500bn.

What would this be worth for the whole global banking sector and how much of it would be passed on to customers and society to repay the debt it still owes for its behaviour?

See the complete 10 part series

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