So What Do We Want of Banks?

So what do we want of banks? A fair question and more sharply pointed in the post-2008 financial meltdown. The skeletons of some banks that fell over are still roaming halls and corridors in major cities, and probably still rumbling through your life too if you're in a major financial center like Singapore, New York or London. You may still find some Lehman Bros goodies on Ebay and the bankruptcy administrators did find USD 11 bn! The Lloyds/HBOS/Insight Investment/SWIP saga drags along in the City of London, while the boxing inside and outside the Bank of America/Merrill Lynch merger will be a great spectator sport for a while yet as WSJ and The Atlantic covered. Tuesday's profits announcement from Wall St did not help the mood either . Things are a little prickly now that Goldman Sachs is piling on the profits, profits which some argue are from the crisis it helped create , although investment types at SeekingAlpha like the good news. And the bump in pay packages is going to attract whining louder than Lions supporters on the 2009 Springbok tour. The question was posed by moderator Tom Cummings facilitating one of the breakout conversations at the Tallberg Forum 2009 in Sweden 24-28 June 2009. My thinking heads to the large end and the small end .

At the financial sector "reality check" seminar at the Tallberg Forum on Fri 26 June the question was debated - so what do we want of banks? - and I liked the first reply by the discussant (that role title always makes me smile). The discussant prefaced comments by admitting he had been a sell-side analyst covering the financial services sector in his past. Chatham House rules make me unable to attribute comments nor positions, but we had a fair crop of current and past financial services thinkers, workers and leaders, including fromTriodos, HSBC and ABN Amro. The frank comment from the discussant was not “more funding to eco-friendly ventures” nor “lower fees for unbanked communities’ nor "low-income housing loans" or such. No, it was short and sharp, and indisputable: “I want my money back!” Can you argue with that from a bank? Pretty simple, but pretty fundamental. We want a bank to be solid - reflecting the huge architectural homes they had back in the 19th century with columns and vaults and steps - and to know the cash will be there when we need, give or take the odd Italian Job .

Tom managed to guide the conversation long enough to unlock other core aspirations for what we want from banks, namely “meet needs at reasonable price” and “values that match my values” . But that first reason for what we want from banks does stick out: core to strategy. The comment is also a reminder about the context: the for-profit lender bank has a role to play, and fundamentally it is about keeping its client’s money safe until called for. This is some 9 years after the paper in Fall 1998 in defence of the need for commercial banks from a University of Chicago academic, Prof. Rajan, at the National Bureau for Economic Research in the US.

Peter Blom, of legendary Dutch banking group Tridodos has reasons to smile, and not just for having a shop that won the 2009 FT Sustainable Banker award in LDN (see post Geldof Lectures Bankers) in a boost to the UK operation. . After the recent meldown, Triodos was swarmed by depositor clients seeking safe haven for their money. Triodos describe how they deploy your capital. In a moment, in a disaster, the different and transparent and understandable business model over the history of Triodos had been building for years suddenly proved its worth. Apart from the Triodos sustainability pitch, depositors were delighted to just find a bank they could trust. At its peek, Triodos were collecting 300 clients per day. That is something to grow a business on, although still yet a niche in The Netherlands, UK, Belgium, Spain and Germany where it has operating licences.

The Tallberg conversation spoke of banks heading back to core business, addressing responsibility, transparency and speculation issues up front. What shall we do with the banks . Some delegates spoke of wanting to have banks being simpler, to make sure savings are really safe. Regulation to help make this happen is a given. The super-regulation across jurisdictions is still being hammered out, and no doubt too much regulation will be with us before things settle back. But do enjoy reading the paper "Why Do We Regulate Banks" from the right-wing American Enterprise Institute from 2005 . Or the 1991 Time article "Do We Really Need Banks Anymore?" which predates the 1990s rush to unpack the wise but outdated 1930s banking legislation in the US. What a wonderfully prescient push in the wrong direction. The impact of “fear and greed” was still apparent at Tallberg in the edgy comments about bankers (but some of my best friends...!). Not every bank is a Triodos. What do we want of banks? Bottom line for banks, whether at the windy end of downtown Manahattan at 85 Broad St or on your local neighbourhood block: we want our money back, on any given day. Better than that, get that money multiplying into investment and lending that understands the planet has boundaries, that directly integrates ESG factors in investment decisions.