Mixing politics and banking is a risky exercise. It can also prove calamitous. The most recent example concerns the decision in July of the NatWest-owned Coutts private bank to close the account of one of Britain’s most well-known political figures, Nigel Farage.

Coutts claimed that the Brexit leader’s account had been closed because the amount invested had fallen below the financial threshold required by the bank’s customers, but it turned out that Farage’s political views had also played a significant role in the decision to de-bank him. In internal Coutts documentation acquired by Farage, Coutt’s reputational risk-assessment committee described him as someone “considered by many to be a disingenuous grifter” and “seen as xenophobic and racist.” His supposed views were thus deemed “at odds with our position as an inclusive organization.”

Worsening the situation was a breach of client confidentiality by NatWest’s CEO, Dame Alison Rose. At a dinner, she intimated to a BBC journalist that Farage’s account was closed for purely commercial reasons. Britain’s national broadcaster (not known for its friendliness to conservatives) apparently didn’t bother to check the veracity of the claim. They simply ran with it.

For this inaccurate reporting, the BBC apologized. For violating one of banking’s most basic rules of conduct, Rose eventually resigned, but only after pressure from the British government—itself a 39 percent shareholder in NatWest, a legacy of the 2008 financial crisis.

Maintaining client confidentiality is about as sacrosanct as it gets in the world of private banking. But the NatWest fiasco also reflects significant political biases presently operative in much of the financial sector throughout Western countries.

It’s no secret that progressive social views are considered de rigueur throughout much of the banking industry. Many bank CEOs publicly associate their institutions with left-leaning causes; they rarely show interest in supporting positions considered conservative. In a few cases, these decisions may mirror a CEO’s personal political preferences. But they also reflect how, like other corporations, banks face relentless pressure from progressive activists to support their favored positions. Such trends are reinforced by the banking industry’s embrace of diversity, equity, and inclusion initiatives and the creation of attendant positions like Chief Diversity Officers (CDOs) to promote DEI throughout financial institutions.

These elements contribute to an atmosphere in which many people working in the financial sector are encouraged—or coerced—into looking askance at someone like Farage, who does not disguise his conservative opinions on topics ranging from immigration to climate change. Farage’s decidedly non-woke views, it should be noted, are shared by millions of Britons who are, like Farage, neither woke nor right-wing extremists, let alone racists.

At a minimum, it is surely imprudent for any bank to let itself be seen as regarding entire swathes of the British population as extremists. That’s a sure-fire way to alienate potential clients. Yet this is precisely the situation into which NatWest stumbled when Coutts employees decided that having Farage as a client was a risk to the bank’s reputation.

Yet the trend of progressive de-banking will be difficult to dislodge, for two complicating reasons. First, banks do indeed need to think about reputational risk. The long-term success of banks relies heavily on that intangible but real element called “confidence.” The moment that confidence in a bank is compromised—whether because of a perceived lack of probity or a collapse in trust—it is difficult for that institution to recover.

Many things can undermine a bank’s reputation. These range from allegations of insider trading to the provision of commercial services to criminals or terrorists. It follows that any bank should be free to decline to do business with anyone that it suspects will damage its good name.

The difficulty presently facing banks is the extent to which some of their staff confuse genuine reputational risk with people expressing political views disfavored by progressives. Moreover, attempts by banks to extricate themselves from these circumstances will likely lead to highly visible spats with the same progressive groups that have pressured them into adopting such stances, and from whose ranks those who hold CDO positions inside banks are often drawn.

The second complication is the extent to which government involves itself in modern banking. The financial sector is one of the world’s most heavily regulated industries. This reality means not only that the links between finance and politics run deep but also that governments, legislators, and regulators enjoy immense leverage over financial institutions.

Return, then, to the Farage affair. Like everyone else in Britain, people at NatWest and Coutts were surely aware that Britain’s deeply unpopular and perpetually dysfunctional Tory government may get tossed out at the next general election, scheduled for 2024. Should that transpire, the vast regulatory structure that oversees every financial institution in Britain will be working for a Labour government with little time for outspoken conservatives. In NatWest’s case, the situation would be worsened by the fact that its biggest shareholder will be that very same government. It is not beyond the realm of possibility that some Coutts staff concluded that having Nigel Farage as a client might complicate NatWest’s relationship with an incoming Labour government. If Farage’s defenestration from Coutts was indeed an effort at preemptive action, it backfired spectacularly on NatWest. After considerable dithering from various Labour spokesmen, Labour’s leader, Sir Keir Starmer, publicly and firmly stated that Rose had to go.

Beneath these specific challenges looms a larger issue. The Coutts internal document listing the reasons for discontinuing business with Farage stated that his “controversial public statements . . . were felt to conflict with the bank’s purpose.” What bank purpose was “felt” to be at stake here? The purpose of banking is not global social justice, promoting inclusiveness and diversity, or advancing progressive (or, for that matter, conservative) causes.

Instead, banks and financial institutions have very particular functions. These include creating economic value by facilitating efficiencies in the investment of capital by individuals and businesses; managing risk in ways that increase potential gains over the short, medium, and long term; introducing more flexibility and freedom into how people match the potential capital at their disposal with what they need and value at different points of their lives; and establishing relationships of trust and confidence between creditors and debtors in multiple economic settings.

The goal of these functions is to generate quality financial services and sufficient revenue to cover operating costs and deliver profit to the bank’s owners. But in pursuing these ends, banks help to put capital at the disposal of thousands of businesses and millions of individuals and families, in often clever ways. This grows the sum total of wealth in society; a world without banking—or one in which banks get distracted from pursuing their core objectives—would be much poorer.

Too many in the financial sector have lost sight of the fundamentals of what they do, and why they do it. If this turn of events has taught us anything, it is that bankers should stop pandering to progressives. Instead, they should spend more time defending and promoting the importance of what banks do qua banks. For therein lies their true legitimacy—something that will only be weakened by their becoming mere auxiliaries of activism.

Photo by Richard Baker/Getty Images


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