Banking

Saturday morning madness. Been reading about the ongoing slow motion nationalisation of Citibank… got me thinking…

The current banking model is based in the love of growth, and not the kind of directed growth that the world seems to need, but growth at any cost, and in the short-term. See Taleb’s article in the FT, for a description of this madness, but in summary they’ve lost ever penny they’ve ever made (and then some).

Wouldn’t you rather put your money in a ‘bank’ that is run along very conservative lines? A kind of ‘enlightened’ bank that’s goals are things like:

  • maintain the value of deposits at all costs
  • maintain enough liquidity to turn the current fractional banking system on it’s head; 90 / 10, instead of 10 / 90.
  • invest cautiously with the goal of funding the running of the bank and protecting capital against sudden and unexpected shocks to the system
  • push any surplus cash into ethical, long-term focused projects that may only marginally impact the depositors, but have a very high chance of not negatively impacting them

Given that commercially run, publicly listed, banks effectively pay 0% interest on deposits, and still run the risk of losing all of your money (above minimal government guarantees), why isn’t someone pushing a depositor owned bank model like the above?¬†Something tells me that it’d gather a lot of deposits from people like me who just don’t want to see their saving pissed away on coke and strippers for the potential reward of 0.01% interest. The risk / reward of the current system is obviously broken.

Any one know how to run a bank? Surely there must a banker out there somewhere humbled by the size of his failure, who’d be willing to give it a go…

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5 thoughts on “Banking

  1. Don’t forget that buy law these companies have to try to maximise profits. Which means if they are not exploring all options to do this then who ever is in charge will get kicked out and a replacement found. And given how much these bankers make I’m guessing there is a queue aroung the block for these jobs. So I guess the law needs to change to help it along. But I really like the sound of the idea. And it so happens I know a few very well positioned bankers to propose this very idea and get an explanation of how and if might work and why (or why not)

  2. Yep, public listed companies are held responsible by the stock / bond holders to maximise the profits / return on the investment. This is why i think that there has to be model where the depositors are the de facto owners (this might be called a ‘credit union’ (http://en.wikipedia.org/wiki/Credit_union).

    However, i think there is an angle to finesse the credit union concept, and emphasise the safety over the availability of credit. The biggest issues are, as you rightly note, where it would stand in the eyes of the law, and are there bankers who are interested running something with an eye to safety, and not personal gain.

    Banking as a profession you can take pride in… it has to appeal to someone!

Wise words...

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