On 28th February, Christine Lagarde, Managing Director, International Monetary Fund took to the podium to deliver the 32nd World Traders Tacitus lecture in the glorious surroundings of the Guildhall. Mme Lagarde addressed a packed room of senior business leaders on the topic of ‘The Financial Sector: Redefining a Broader Sense of Purpose’.
The theme of her presentation was about how the financial industry needs to address the current negative perception of the sector and re-assert itself as a good influence in society.
To open the topic, she started with a Hollywood story about the making of a sequel to the original Mary Poppins movie. Not only did the producers of the new film recreate the magical nanny, but they also featured a new cast of characters including a villain who is a slick banker, cheating his way to fortune. It is only with a touch of magic that the banker is defeated in the end.
But why Mme Lagarde asked is the banker the villain? When after all, a healthy economy requires a healthy financial sector that is at the service of people as they pursue better lives for themselves and their children. Despite these good aspects, the caricature of the “bad banker” has resonated with audiences since the dawn of civilization.
It does not take magic to trace much of this most recent frustration back to the global financial crisis, and the steady drip-drip of financial scandals and misconduct that have occurred all over the world.
Mme Lagarde believes however that a better financial sector—one that is safer, more sustainable, and ethically sound can be built.
The key to achieving this goal is to reshape finance into something that is more aligned with societal values and more connected to the interests of all stakeholders: from customers, to workers, to shareholders, to local communities and future generations.
In Mme Lagarde’s mind, if finance is to become safer and more trustworthy, it will need to harness good innovation, better regulation, and a broader sense of responsibility.
With regards to innovation, while the fintech sector is providing products that are substantially cheaper and more accessible she argued that it needs better regulation and smarter supervision to ensure that fresh sources of credit do not encourage people to overborrow and that personal data is protected against prying eyes and criminals.
Another area where financial institutions need to become more vigilant and safer is around the risk of cyber-attacks. The IMF has recently estimated that cyber-attacks could potentially lead to net income losses in the global banking system of up to $350 billion.
In relation to shouldering a broader sense of individual and collective responsibility, banking officials need to have more skin in the game. This is only starting to happen. For example, in the U.K., senior bankers and traders have to comply with the so-called Senior Manager and Certification Regime, which has increased accountability and is helping firms to set a better “tone at the top”.
Mme Lagarde also touched on the need for banks to support sustainable and inclusive growth. She stressed that diversity leads to more prudence and better decision-making. She spoke passionately about how more female leadership is critical and not just at the top. As consumers of financial services, women all over the world are making their voices increasingly heard when it comes to investing their own money
Before leaving the stage, Mme Lagarde’s concluded by returning to Mary Poppins. She reminded the audience of the scene where the “good banker” teaches his children a lesson about purpose. He argues that they should follow in his footsteps, and he sings the following lines
“A British bank is run with precision. A British home requires nothing less! Tradition, discipline, and rules must be the tools. Without them—disorder! Chaos! Moral disintegration! In short, you have a ghastly mess! ”
Mme Lagarde acknowledged that the genius of Mary Poppins character is that she is serving others —with dignity, with a kind heart, with honesty, and with a wicked sense of humour and she concluded that this is a good description of what the financial industry should be all about.
Serving others, not yourself—that is the real magic of finance.