Stung by criticism, the banking sector still seems go into Rottweiler mode. But instead of reflexive anger, it need to participate in the debate, says Ruth Sunderland: editor of Observer Business & Media

Rehabilitating the banks was always going to be a huge communications challenge: the credit crunch has left their reputations in as much need of repair as their balance sheets. One year on from the collapse of Lehman Brothers, which precipitated the worst wave of the crisis and the near-closure of the UK banking system, how are they doing? The answer, unfortunately, is not very well.

The scale of the communications breakdown between banks and the rest of the world was highlighted in the nature and tone of the response to comments by Adair Turner, the chairman of the Financial Services Authority, after he aired some highly critical views on the industry in a round-table discussion in Prospect magazine.

Lord Turner expressed the view that the financial services sector was “swollen”, that some of its activities were socially useless and that a special tax on transactions might be used to reduce excessive bonus payments. His remarks merely reflected the views of many outside of the City bubble, yet they were greeted with spluttering rage.

The most common argument trotted out against Turner was the well-worn one that he was damaging the City’s global standing. Let’s just reflect on that for a moment. Who, exactly, has caused most harm to London’s position as a world financial centre? No, I don’t think it’s Lord Turner either.

There is a valid debate about whether the financial sector became disproportionately large and influential: when you live iN a country that relies heavily on one industry, and that industry shows itself to be deeply irresponsible, you have a problem.

Similarly, there is a discussion to be had about the social utility of financial services: banks could and should play a valuable role, by facilitating the productive use of capital by people and businesses. The banks have, for instance, enabled millions of people to buy homes and to start and expand businesses, and that is a social good. In the run up to the crisis, however, it was far from clear that their priority was to serve customers: it looked like their main mission was to serve themselves. Mainstream banking seemed to have been pushed onto the back burner by more exciting stuff, including the esoteric financial innovation that fuelled the collapse. Money-shuffling may have a value, but it is to bankers, not to society.

“To regain public trust, banks need to answer some basic questions – and convincingly”

Individual executives are understandably loath to put their heads above the parapet to talk sensibly about these topics for fear of being turned into whipping boys for the entire industry. But in their shrill attempts at self-defence, and their refusal to engage properly with their critics, the banking lobby is coming across as defensive and out of touch. Instead of reflexive anger, they need to participate in the debate about what is their proper role and status in society. That means listening, not going instantly into Rottweiler mode.

In order to regain public trust, they need to answer some basic questions, convincingly. Why are large bonuses being paid so soon after the meltdown? (Please don’t air another tired argument, likening ‘star’ money men to David Beckham: it doesn’t work, because he has brought pleasure to millions and he doesn’t have to be bailed out by taxpayers if he performs incompetently.)

Why is credit still not flowing through to individuals and small firms? Why shouldn’t the industry be more heavily taxed and regulated? Why is it that banks, which are supposed to be in a highly competitive industry, are able to continue charging such high fees? How are they going to prove they act for the benefit of society and not just themselves? And when will this industry, which has caused untold harm, show signs of real contrition?

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