Over recent years, bank bashing has become the social and political norm. Whether it’s a conversation at a dinner party, the office water cooler, in the pages of national newspapers, or at the office of industry regulators, it has become an accepted norm that banks and bankers have been, and largely remain, greedy, reckless or even intrinsically evil. This culture has embedded itself so profoundly that many banks’ leaders are forced to spend their time issuing self-deprecating apologies and announcing strategy plans focused on idealistic notions of making the world a better place rather than doing what they would like to do, which is getting on with running the bank.
In some ways this state of affairs is entirely justified. Colluding to fix Libor rates or rogue trading is genuinely villainous and intolerable. But is it really fair for banks to be so universally and consistently tarnished with the same bad brush?My answer to that is a clear no. Not only is it an unfair assumption that all banks are bad but it is fast becoming a spectacularly unhelpful perspective that risks long term damage to the economy and could take us in the opposite direction to that intended in social progress terms.
To explain why, we need to shift our focus away from woolly ideals of good behaviour and examine the true purpose of banks. From the first emergence of a world economy in the 1600s, through the 200-year phenomenon that we loosely name the Industrial Revolution, to the building of the world’s major cities and modern economies in the 20th century, the purpose of banks has been clear: to facilitate trade, fund growth and create wealth for clients. The obvious truth is that without banks none of these major advances in society could have happened. The Medici empire wasn’t a small family business; Watt’s steam engine or Edison’s light bulb weren’t the product of some tinkering in a garden shed; London and New York didn’t rise up to the skies as a consequence of some enterprising DIY – they all happened because banks found ways to finance mere dreams into gargantuan realities. The true purpose of banks has never been solely to make money, they are the engines of social progress. Without them, society stands still.
But of course driving progress on such monumental scale is not easy. So, throughout history, banks have had to be supremely creative in how they discover and invent new sources of opportunity. Few industries have innovated, evolved, scaled and re-imagined more than banks. When one considers the most creative business on the planet, banks have to be right up there with the likes of Apple, Google and Nike – a fact that most commentators on such things rarely acknowledge.
Now, though, the bank-bashing argument is that the source of recent economic problems is that banks got too creative for their, and our, own good. And there is some truth in that. There’s a point in time at which banks’ creativity shifted from being focused on driving value to their clients and to society and became more about driving value to their own assets and bottom line; financial products became too complex for even the people who managed them to fully understand. Under these circumstances chaos inevitably ensued. And it is towards this that the public, the politicians and, most importantly, the regulators have chosen to focus their ire. Creativity, caused the crash, their thinking goes,so let’s stifle it so that it cannot happen again.
This, however, is a fundamental dilemma. If we ask our banks to operate with zero risk to the economy then it follows that we are asking them to operate with zero innovation and zero growth. In effect it says that we accept that banks cannot play their key role in generating a more prosperous and progressive society. Many bankers I talk to today are already firmly of the opinion that over-zealous regulation and their own leadership’s newly-found focus on risk-averse strategies is significantly limiting the value they can bring to their clients and to the public. They tell me that we are digging ourselves into an economic rut.
So, it is my opinion that we need a fundamental rethink of the way in which we regard and mange our banks. We need to get back to recognising that banks create the opportunities by which individuals, businesses, economies and societies flourish, and we need to encourage and incentivise their doing so. We need to encourage innovative thinking and bravery and not actively discourage it. This needs more than the banal ideas that get dressed up as innovation by some: who cares if the branch is open half an hour longer on Saturday or if dogs are allowed into the bank. What we need are tangible innovations in financial products: ideas that get first time buyers on the property ladder, allow entrepreneurs to see their ideas fly, big business to get bigger creating more jobs and more access to the products and services they produce that enhance people’s quality of life. We need to get the leaders of banks and their teams of people to drop the focus on abstract statements of purpose and values that talk about being trustworthy (trust is the foundational principle of money – trust of banks is more deeply resident in people’s minds than they care to admit) and get them incentivised to deliver the new ideas and creativity that the economy needs. Possibly the most innovative bank in the world today is Kickstarter – we need this level of concept coming out of the established big banks.
Local, regional and global economies remain in a fragile state and economic futures are very much hanging in the balance. If we don’t stop bashing banks and start backing them, there is every chance that the recovery will never gather pace. Banks are not the problem, they are the solution but until we choose to make this shift in our minds of how we position them they will be unable to deliver what we need.
Banks are the engine of social progress. It’s time for the public, the press and the politicians to release the brakes and fuel them with our support.--
First published on Global Banking and Finance Review, 20 May 2015