Post-crisis reforms have forced banks to become far too risk averse, starving the European economy of credit. The result is the stability of the graveyard.
Forgive me. And I say this as a COMPLETE ignoramus, but didn’t the last banking crisis start in the US?
All the mechanisms intended to prevent the banking crisis didn’t work. Nobody appeared to see it coming. Everyone was cock a hoop at all the exciting and innovative work of these masters of the financial universe…right up to the point they blew the world up in our faces and we all got stuck with the bill?
I’m probably completely wrong. I accept I have zero knowledge in this area. All I know is that I’ve heard all this before. Too many regulations. Free the market to do what it does best.
On the evidence I’ve seen, what it does best appears to be to take massive risks to enrich a very small cadre of people at the expense of everyone else.
But again. I’m probably wrong. You guys and girls are far better informed than me.
Just like you were last time. And the time before that.
One might ask why there is so much regulation… and conclude that maybe it’s because the sector repeatedly demonstrates its inability to behave ethically and honestly. That is why it has paid out more in fines than just about all other sectors put together.
The root causes go further back, starting with deregulation in the 80s and what followed. Banks decided that they could make much more money, in the short term at least, with bigger personal bonuses, by focusing on trading/speculation and fee based services. And if it blew up as it did they would be bailed out whilst keeping those bonuses. Boring old lending to businesses was not as profitable and anyway tied up capital which they would prefer to use for trading.
So they got rid of all those branch managers who knew local businesses and context, along with sector specialists in regions or districts. I watched it happen, first hand. They no longer have the capacity and knowledge to lend properly and anyway their financial interests lie elsewhere.
I recall being in a directors meeting of a large international bank as Oliver Wyman, referred to above, presented their analysis of the risk weighted return of the different businesses. There was some uproar when the best business turned out to be African banking! They just kept generating a steady return over the years. Unlike their smart arse colleagues who made a lot of profit and then every so often blew it.
The consequences for SME’s are dire as it limits their ability to invest and scale. Big firms can go direct to the market. VC’s are only interested if they think they can flog the business off before too long,probably to a large competitor (as has happened in tech) as substantial profit.
All things considered, that makes much of the City banking a drag on the wider economy. Yes it pays tax but then how much tax is lost due to the City’s nefarious activities?
If you’ve not seen it, watch the Bank of Dave TV programme
Forgive me. And I say this as a COMPLETE ignoramus, but didn’t the last banking crisis start in the US?
All the mechanisms intended to prevent the banking crisis didn’t work. Nobody appeared to see it coming. Everyone was cock a hoop at all the exciting and innovative work of these masters of the financial universe…right up to the point they blew the world up in our faces and we all got stuck with the bill?
I’m probably completely wrong. I accept I have zero knowledge in this area. All I know is that I’ve heard all this before. Too many regulations. Free the market to do what it does best.
On the evidence I’ve seen, what it does best appears to be to take massive risks to enrich a very small cadre of people at the expense of everyone else.
But again. I’m probably wrong. You guys and girls are far better informed than me.
Just like you were last time. And the time before that.
Anyway, interesting read. Thank you.
Is part of the problem not also the continued closure of small, local branches, where the manager knew the local businesses?
One might ask why there is so much regulation… and conclude that maybe it’s because the sector repeatedly demonstrates its inability to behave ethically and honestly. That is why it has paid out more in fines than just about all other sectors put together.
The root causes go further back, starting with deregulation in the 80s and what followed. Banks decided that they could make much more money, in the short term at least, with bigger personal bonuses, by focusing on trading/speculation and fee based services. And if it blew up as it did they would be bailed out whilst keeping those bonuses. Boring old lending to businesses was not as profitable and anyway tied up capital which they would prefer to use for trading.
So they got rid of all those branch managers who knew local businesses and context, along with sector specialists in regions or districts. I watched it happen, first hand. They no longer have the capacity and knowledge to lend properly and anyway their financial interests lie elsewhere.
I recall being in a directors meeting of a large international bank as Oliver Wyman, referred to above, presented their analysis of the risk weighted return of the different businesses. There was some uproar when the best business turned out to be African banking! They just kept generating a steady return over the years. Unlike their smart arse colleagues who made a lot of profit and then every so often blew it.
The consequences for SME’s are dire as it limits their ability to invest and scale. Big firms can go direct to the market. VC’s are only interested if they think they can flog the business off before too long,probably to a large competitor (as has happened in tech) as substantial profit.
All things considered, that makes much of the City banking a drag on the wider economy. Yes it pays tax but then how much tax is lost due to the City’s nefarious activities?
If you’ve not seen it, watch the Bank of Dave TV programme
Quite good analysis. Thanks
This is spot on. For more proof points, you can check out the report by the European Banking Federation and Oliver Wyman that estimated some improvements in European supervision and regulation could unlock €4 trillion in lending. https://www.ebf.eu/ebf-media-centre/new-study-outlines-path-to-unlocking-major-bank-financing-and-economic-growth/.