WHAT on earth is our finance minister up to? Pravin Gordhan has been on a vociferous campaign against banks, calling them "greedy monsters" in a speech last week and again in yesterday's Sunday Times. Seeing as he is SA's finance minister, one must assume he is including our bankers in his broad sweep, though much of his diatribe referenced the UK's Libor interest rate scandal and the US subprime crisis.
There is a gaping chasm between the way our banks operate and the way the banks at the centre of the financial crisis operated. Pointing to the latter group as a way to criticise the former, is like pointing to an elite athlete bust for doping to criticise a high school track team. There is no logical connection. I imagine Mr Gordhan would be annoyed were I to make sweeping comments about the failures of finance ministers. Consider France's former budget minister Eric Woerth, who is facing 10 years in prison for allegedly accepting cash from heiress Liliane Bettencourt.
Should one greedy monster be used to symbolise all finance ministers? Of course not. And neither should a handful of bankers characterise all of them, let alone those operating in fundamentally different markets to our own.
When Mr Gordhan does get specific about the South African industry, he concedes that the Libor scandal and financial crisis have little to do with it. He points to "its own set of challenges", particularly "high and opaque fees", with an example of a client who saves for 20 to 30 years for retirement only to find that 30% to 40% of their savings have been consumed by costs.
The example is not specific so it's hard to know if it actually exists, but let us take it seriously as a real problem. In this case, the client must have been using an entirely inappropriate account. Mr Gordhan presumably is well aware that the same client could have used fixed deposit or notice accounts, a much more appropriate vehicle for retirement savings (if the client must use cash accounts at all), and come out far better at the end of it.
Any consumer can make mistakes, whether about bank accounts or running shoes. I have the injuries to prove it.
If we want to improve the consumer experience of banking, two things are important: transparency and education.
A free market works if the agents in it have the information to make appropriate decisions. I agree that there is opaqueness in banking and there is a market failure at the heart of it.
Being more transparent than your competitors sometimes chases away business, so the incentives work against the optimal social outcome. In such cases, regulation can make a difference by enforcing a uniform standard set of disclosures about products. For example, any marketing material for lending products should be required to display the annual percentage rate (which must include all the costs), calculated according to a standardised formula.
This is one simple suggestion, but it is a practical one that helps to address a problem we can all agree exists. The sweeping attacks on bankers that Gordhan has embarked on, grasping at disparate examples, is neither constructive nor practical.
It reads instead like the rant of a one-dimensional ideologue not particularly interested in finding practical solutions to real problems, but rather in grandstanding for political point scoring.
What confuses me is what motive he might have. Is he trying to prove that he is not on the side of the banks to his more left-leaning colleagues to buy political space for a fundamentally bank-friendly regulatory approach? Is there some particular issue he is trying to win over on the banks, and is bashing them to soften them up? Is he preparing the ground to motivate for greater state involvement in the banking industry? Is he suggesting that our banks may be up to something equivalent to the Libor scandal in the case of Jibar (the Johannesburg interbank agreed rate)?
I am all for public debates about how our financial system should be regulated. It is already among the best regulated in the world, according to various global rankings. Mr Gordhan's department should get a lot of the credit for that. Yes, greed can be a problem, but by and large our bankers clearly understand their wider responsibilities and the social consequences of their activities.
They are willing participants in debates about the regulation of their industry. The problems that Mr Gordhan legitimately has with the local banking industry can be addressed by solving market failures and letting competition do its job in driving innovation and bringing down prices. One only has to look at the banks' advertising campaigns to see that competition is doing a good job of forcing down fees and increasing interest rates to attract borrowers. But lambasting the "greedy monsters" with a confused assortment of irrelevant international examples serves merely to undermine public confidence in our banks. And that is not what a finance minister should be doing.