The Other View

It Is Our Money

 By David McCombe

Following the recent AIB calamity that sent shockwaves throughout financial institutions across the world, one wonders just what this cost the Bank in question. Well, £500m is a lot of money to lose!
Considering that the majority of people today who have occasion to use a bank¹s facilities are people with the ordinary Current (or Cheque) Account, and are not familiar with the "ins" and "outs" of high finance – just the "ins" (or lodgements) and "outs" (withdrawals) of their own personal accounts, opinion appears to be that they are not too bothered so long as it does not have any adverse effect on their hard-earned money.
However, if one considers £500 million a lot of money, then one must also consider just how that money is "earned" by the bank. To illustrate the point I am trying to make, let¹s suppose that "A Bank" has one million current account holders in Northern Ireland (and that is a conservative estimate). Each current account holder writes 100 cheques per annum; makes 20 lodgements; the account facilitates 50 direct debits and 50 standing orders; an overdraft facility is available; a cheque guarantee card is provided; ATM facilities are available; foreign currency is purchased at least once per year, plus travellers¹ cheques. The cost of maintaining that bank current account is approximately £140 (excluding the cost of additional bank services that may be required from time to time). That amounts to a staggering £140,000,000 gross "earned" by "A Bank¹s" million ordinary current account customers in Northern Ireland. Multiply that by three (=£420 million) and you have a good idea of income "earned" in Ireland (North and South) by banking establishments from the Average Individual Bank user. Add to that the Business Sector Account charges, Share Dealing, Loans, Financing, etc. and a tidy sum soon accumulates far in excess of £500m.
That leads into the international side of banking. Again, not too familiar ground to the average "person in the street", but a great source of income for the banking institutions. Have you got the picture yet? £500 million can soon be recouped! This is borne out by a statement on 6th February by AIB Group Chief Executive Michael Buckley. "The Group¹s underlying business and profitability momentum is not impaired by this once-off blow. Our capital adequacy continues to be strong". The statement also reiterated the fact that this £500m loss will not have any impact on the dividend policy of AIB Group.
John Rusnack, the man at the centre of the AIB Group¹s £500m calamity appears to be just an ordinary working American bloke on a £50,000 p.a. salary. So how did he come to have access to such huge amounts of money, and "lose" £500m, without it being noticed as missing, for a year? After all, that particular subsidiary in Baltimore reputedly made a profit of c£10m. Reports on the matter have suggested collusion within the ranks of fellow employees. AIB Group applies a set of Business Principles in conjunction with Policies and Controls that govern activities. These cover the 32000 employees worldwide. It would appear, however, that these Business Principals and Policies and Controls failed to operate in relation to the activities of Mr. John Rusnack (and others perhaps) over a one year period. Quoting from AIB Group Business Principles, under the heading Our Staff, "We recognise the advantage given to our organisation by intelligent, motivated and creative staff; staff who work as a team and not simply as a collection of talented individuals". Again I find under the heading Guidance the following; "It is not possible for any Statement of Business Principles to cover every eventuality, nor should it seek to do so. Increasingly, business life is about staff having the freedom to make decisions, as long as these are consistent with the values and principles of the Company. It is inevitable that there will be occasions where individuals
are confronted by situations not covered by policy, precedent or procedure and are compelled to make a decision on the most appropriate course of action².
The inevitable happened, to the tune of £500m. A staff member – as described above under the heading Our Staff as intelligent, motivated and creative – was compelled to make a decision not covered by policy, precedent or procedure on the most appropriate course of action. He had the freedom to make that decision. However, he did not ask himself the following questions, outlined in the Group Business Principles under the heading Guidance. "Am I being fair and honest?"; "Are my intended actions legal?"; "Will my action stand the test of time?"; Is anyone¹s life, health or safety endangered by my action?"; "How would my action look in the media and in public"; and ³Will my actions damage the reputation of the organisation?".
I know this headline grabbing activity of John Rusnack is in the early stages of investigation, but one must ask oneself "What would I have done in the same circumstances that John Rusnack found himself?" Therefore, I am in no way being prejudicial or taking the high moral ground. But there are questions to be answered. And John Rusnack is only one of many,many employees of AIB who could find themselves in similar circumstances. (Needless to say there will be a lot of speculation in the next 30 days during which a report is being compiled on recommendations on any improvements that appear necessary or desirable to the police controls operated by AIB Group).
Returning to the nitty-gritty question that arises. Who will "pay" for the loss of £500m? Well, as I have already pointed out the charges banks levy on the ordinary person in the street who through necessity must have a current account to facilitate direct credits of wages and salaries, etc. This revenue provides the "stake money" that enables the banks to speculate to accumulate through operations such as that at Baltimore Allfirst. I believe after reading this article that one should be in a position to realise "who will pay". It is us the public.

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