The International Writers Magazine: UK Life with Tom Kilcourse
There was a time, not so long ago, when a British bank was a business with branches in the high streets of towns up and down the country. Each branch had a manager who was integrated into the community that he or she served.
I recall the occasion when I was asked to run a stall in an annual local charity event. The task involved doing card tricks, and the local bank manager had run the stall previously. I needed training, and this was done in the bank’s branch, sitting in a corner of the customer area, with the manager, John, showing me how to do the tricks. I did wonder at the time what would happen if a bank inspector walked in at that moment, but John wasn’t in the least worried. Others went to him with more serious business, seeking a mortgage or a business loan perhaps.
That was Devon in the mid-nineties, but change was already underway. John telephoned us one day and asked if we would mind seeing one of his new ‘financial advisors’. We agreed, but the young man who visited us was really a salesman pushing ‘products’ listed in a booklet. My wife and I were both economics graduates who had spent our professional careers in management development. Our visitor proved quite clueless when we made any mention of the economy. His knowledge was confined to the booklet the bank provided.
Today, I live in a Cheshire community that does not have a bank. The nearest branch of any bank is in a nearby town. Visiting mine requires a 15 minute drive in the car. When there, one cannot see an assistant without an appointment, and getting the manager’s attention requires an emergency. Telephone calls go to a call-centre, and the number of the local branch is not available to customers.
Whereas John and his team saw their task as offering advice, staff are now more like the young chap he sent to see us, concerned principally with selling a financial product of some kind. In short, over the intervening two decades the nature of the bank and its purpose have changed almost beyond recognition. Customer service has been sacrificed to cost savings, and the whole culture of banking has changed from top to bottom.
An institution that was in the business of accepting deposits from account holders, and using those to fund loans to homeowners or businesses, is now a financial conglomerate. Consequently, the bank’s focus is no longer on customer service to small depositors, but has turned to trading in financial markets. At the top the conservative career bankers with a long-term perspective have been replaced by people whose interest is in those financial markets. It is there that banks now make their profits, and take risks with our money. Today, putting money in the bank is akin to funding the habit of a compulsive gambler.
What can be done? Many have argued for greater regulation of the financial system, and some politicians would have us believe that they have this matter in hand. That is simply not true. Politicians in Britain and America cannot be relied upon to regulate financial markets for two reasons. Firstly, the operations of those markets are incredibly complex, making proper regulation beyond the wit of bureaucrats, and secondly, the financial markets are the source of campaign funds for politicians. This latter point is not unconnected with the Congressional decision in December 2014 to roll back the rules preventing US banks from trading in derivatives.
If effective regulation of financial trading is unlikely to be successful, an alternative would be to separate high street banks from that activity altogether. As Philip Kotler suggests in ’Confronting Capitalism’, we need to “…drive banking back to its original purpose – meeting the needs and interests of small, medium and large scale businesses…”. John Kay in his excellent book ‘Other People’s Money’ also suggests a structural solution. Kay remarks that politicians’ claims that no bank will be considered too big to fail in future are disingenuous, the banks having been informally assured otherwise.
Drawing curtains or erecting Chinese walls’ between the deposit taking high-street parts of banks and their trading arm is not an adequate solution for a number of reasons. Such arrangements are extremely difficult to monitor effectively, and it does little to alter a bank’s focus back to its retail customers. Banks have become infected with the trading culture and it is trading that occupies the attention of their directors. If they are to re-focus on the needs of their depositors and small borrowers these people need to become once again the source of their profits.
Another reason why severance from financial trading has to be complete lies in the ‘too big to fail’ issue. Even if politicians were sincere in their promise never again to rescue banks from the results of their greed, the dependence of millions of small depositors and borrowers on a bank would make it politically impossible to allow its failure.
To those who argue that we cannot ‘turn the clock back’ I would say that it is foolish to persist with a mistake, and allowing high street banks to engage directly in trading in financial markets, using depositors’ money, has been shown to be an error. If financial markets are to continue creating new ‘products’ to trade in a casino, we need to insulate high street banks from the process, and to stop allowing compulsive gamblers to use the deposits of ordinary people as collateral.
© Tom Kilcourse Sept 26th 2015
Every action has consequences, some good, some bad and many unforeseen. Those consequences do not always occur in the domain where the action was taken because, in a sense, everything is linked to everything else.