The most amazing for me is the HFT (high frequency trading) stat about Accenture in bold.

A few quotes to whet your appetite.

• Take happiness. Studies have shown that happy people save more and spend less. Happy people also take longer to make decisions and expect a longer life. In short, they are patient.
• Just as patience can self-generate, so too can impatience. And while patience generates self-improving cycles, its alter ego can create self-destructive cycles. Addiction is the classic self-destructive cycle. Drugs and alcohol chemically alter the balance of the double-self, increasing the value of instant gratification. This shortens time horizons, increasing further the value of instant gratification in a downward spiral. Unless arrested, this unfulfilling equilibrium becomes self-fulfilling.
• John Maynard Keynes. He quipped: “markets can remain irrational for longer than you or I can remain solvent”.
• By the time of the stock market crash in 1987, the average duration of US equity holdings had fallen to under 2 years. By the turn of the century, it had fallen below one year. By 2007, it was around 7 months. Impatience is mounting.
• A decade ago, the execution interval for HFTs (high-frequency traders) was seconds. Advances in technology mean today’s HFTs operate in milli- or micro-seconds. Tomorrow’s may operate in nano-seconds.
• HFT firms are believed to account for more than 70% of all trading volume in US equities
• HFT is believed to account for between 5 and 10% of Asian equity volumes. This evolution of trading appears already to have had an effect on financial market dynamics. On 6 May 2010, the price of more than 200 securities fell by over 50% between 2.00pm and 2.45pm.32 At 2.47pm, Accenture shares traded for around 7 seconds at a price of 1 cent, a loss of market value close to 100%. No significant economic or political news was released during this period.
• So disliking goods price inflation and liking asset price inflation suggests a potential time-inconsistency in preferences. It is leaving as a bequest for your children the mortgage but not the house.

The tile of this post is a provocative statement I located at Islamic Finance Expert that will likely meet mostly deaf ears in the US however when we dig beneath the surface , there is merit to the statement when we appreciate it speaks to the methodologies and product design employed by banks to fund business and retail loans.  So US readers, please bear with me.

The western capitalist and financial approach is naturally designed to be one of animosity.  It is a highly one-sided affair whereby the debtor has only one approach available to them which is maintain all the terms and conditions of the debt.  In contrast the creditor owns all the terms and conditions and is always in charge, particularly when the circumstances change and those new circumstances always add to the rights of the creditor.  Whereas there is no change in circumstances that could arise whereby the debtors position could be advantaged over the creditor. 

The opposing capitalist argument would be that positive changes in asset values or profits from business ventures all accrue to the debtor, with no advantage to the creditor.

The very design of this structure is designed to become animus immediately upon a change in circumstances.

What is it about Islamic Finance that it different?

The source of the statement in the title of this post came from someone I was listening to on BBC news.  Linar Yakupov is a financier in the central Asian country of Tatarstan, a state that is part of the Russian federation.  Most Tatars are Sunni Muslims.  The point of the BBC piece was to point out the dramatic shift in commerce here since the opening of Russia and the dramatic increase in importing and consumption of Halal foodstuffs.

The piece continued on to note the increase in consumption of Shariah or Islamic Finance – the financial version of Halal. 

I have noted here before some of the aspects of Islamic Finance back in the 2006 – 2008 period, and it fell off my radar during the credit crisis.  But my approach back then was merely noting the demographic shifts in western countries and the opportunity that created for western banks.  I see now this was a limited view of the opportunity.

Is the economy really that bad that we need innovation in product design?

This is a new normal.  I just do not see how traditional approaches to financing can be the only means to an end in this environment. 

The newer and deeper message promoted by Yakupov and others is that Islamic Finance is a better alternative and one that could navigate the gyrations of capitalist economies particularly as we look out at probably 10 – 20 years of economic re-engineering caused by:

• western business & consumer deleveraging and the impact on asset values
• unemployment absorption & geographic reshaping (think Detroit & Pittsburg)

These shifts are enormous and US, Canada, UK and Europe are all being impacted.  History tells us that post crisis periods create genuine industrial and business innovation.  This occurred in 1870’s and 1930’s.  Richard Florida points out that there is nothing like severe downturns to generate innovation in The Great Reset.  The 1870’s created heavy industry and railroads.  This was a dramatic change.  Innovation such as the assembly line and large factories really took hold post 1930 and the resultant consumer boom lasted until now based on continual growth.  Those innovations in the 1870’s and 1930’s were more than simply the equivalent of a new web model.  They involved systemic shifts in commerce and business.

Financial design worked well so long as everything grew reasonably steadily and bank product design followed along and supported that path.  But what happens now that that bubble is burst.  Does current product design support consumers and business effectively in times of continual doubt and the working out of structural unemployment and the new value of assets particularly housing which have average new price variances across the US of incredible proportions.  (Saginaw-Saginaw Township North, MI $59K to San Jose $630K).  The important note is that the average prices have taken a new form as industry and business changes produced dramatic unemployment where economies were strong prior to the economic breakdown.  I also note that the realtor.org link where I located the average prices above notes NA for Detroit.  Seems a bit ostrich like of them.  Trulia.com is closer to the mark displaying homes in the between < $28K up to >$65K ranges.

It is hard to imagine how banks can operate rationally with such shifts occurring.  The results are neither good for banks nor consumers.  Banks will simply exit the Detroits of the world and that sticks with the one-side model referred to above.

Some specifics on Islamic finance that could work for the post crisis world

Interview with Linar Yakupov.

Principles of investment that support local and infrastrucure: 

• Firstly, according to Shari’ah principles – TIIC doesn’t participate in business connecting with gaming, alcohol and pork production etc. Yet another important moment, to which I would like to draw attention is the fact that TIIC will maximally distance itself from the oil patch. Generally, the investment company will be the additional lokomotive for the diversification of our economy – not only in Tatarstan but in other regions of Russia. 60% of investment will be for our Republic, the remaining is planned to be invested in projects of other regions of Russia.

Helping people help themselves:

• In the Halal Industrial Park the facilities for successful completion of the cycle are provided in order to solve this problem – from the farmer to the consumer. HIP will unite the whole circulation of production flow: from the small and medium-sized businesses’ employers, engaging in manufacturing, to the consumer. Linova-Trade, the special company promoting the production of HIP, has been setted up yet. It will start the activity from the next year.

The main point:

• Moreover, exactly the slant to the speculative instruments in the traditional finance sphere led to the grave crisis. On that score Islamic finance and banking, or ethical banks, how they started to be called nowadays, don’t allow to produce speculation and are turned out to be a sort of  anti-crisis instrument. We don’t say that Islamic finances are the panacea, but they could be the revitalizing factor for the whole economy. If this objective implements, we will be very pleased.

Sharing of risk is a core aspect within Islamic finance from International Shari’ah Research Academy for Islamic Finance (ISRA).

The nature of contracts, which requires that risk be shared by the contracting parties, exemplifies the principle of fairness and justice in Islamic Finance. For instance the partnership contract (musharakah) specifies that all the parties that share the capital in a particular venture will share the profit in proportion to their capital contributions. On the other hand, if there is any loss, all have to share the loss according to the portion of the capital contributed. This equity-based contract will also help to generate greater economic activities through the principle of profit-and-loss sharing; and the clearly defined risk-and-profit-sharing characteristic serves as an additional built-in mechanism to avoid any disputes and economic uncertainties.

Relevance to Bankwatch:

We are in changeable economic times, and everyone expects that to last for many years to come.  Today on Fareed Zakaria his topic was ideas as he seeks to understand what it will take to operate and thrive in this new world.  He interviews Robert Kaplan, Clay Shirky and Richard Florida.  (It is an hour that knocks it out of the park if the future interests you)

What struck me about the methodology espoused by Islamic Finance is not the adoption of Islam or Halal.  Rather it is the adoption of sound principles that avoid the bad and focus on the good (Umair would like that).  It is not a rhetoric argument to argue that gaming and alcohol business will not generate the innovation required to move us through these times.  Rather what struck me is the focus on non-speculative core business which in the case of Tatarstan happens to he Halal but there is no reason these finance principles cannot be applied to core businesses that operate in western economies. 

A core aspect of product redesign that banks can learn from Islamic finance is shared risk.  What if mortgages made during the period 2003 – 2007 had a proportion based on shared risk and benefit.  This would have limited the home ATM phenomenon, speculation would have been reduced, and frankly less risks would have been taken.  A product designed this way where the bank shared in the appreciation on homes would have had no interest in 2006, but what of such a product in the 2010 – 2020 timeframe?

Back in 2008 I noted the proposal by Niall Ferguson for a Jubilee as the only solution because he believes the deleveraging necessary is too large to absorb.  Jubilee means (amongst other things) debt forgiveness and Niall noted the many times this has been used in history to get past a bubble.  Islamic finance uses shared risk as a method of producing a softer landing than absolute debt forgiveness but achieves similar results.

It just strikes me that there are serious lessons to be learned from the world of Islamic Finance that can be applied to genuine innovation of western financial products that would work not just for Muslims for for western consumers, business and economies. 

Online Finance Startup Wesabe Heads To The Deadpool | Techcrunch

The startup’s homepage now consists of a letter to Wesabe users instructing them to download their account information by July 31, at which point nearly all of the service’s features will be taken offline and data deleted. 

And from the Wesabe home page:

In recent months Wesabe has been operating on a shoestring budget, with support from some of the developers and operations people who made up our core team. While the site has remained online and we continue to hear from people who find it helpful, we have not been able to provide the support people need to use it for something so central as financial management. I’ve felt especially terrible that some members have a good initial experience but then hit a problem, often after investing many hours, and aren’t able to get help with it. That’s obviously a bad experience, and not what we want to offer. Also, because Wesabe stores such highly sensitive data, continuing to operate the service with shoestring operations and security staff is not acceptable, and we do not want to continue accepting new accounts if we cannot guarantee the security level we believe our service requires.

The ad was for GotoMyPC that “allows you to access your PC from anywhere in the word”. Its a funny ad that begins with a travelling executive who realises the information he needs is on his PC back at the home office, so he sends some carrier pigeons back to get his PC, and they forget the keyboard. Funny stuff, but there is much larger message here.

An no, the message is not get a laptop. That is a personal preference, and offers an interim solution, but does little for sharing the information, nor deal with hard drive crashes, or ensuring you have the latest version of the information. No this is a message about the ‘cloud’ and having the security of knowledge that you could be handed a blank brand new laptop today, and be up and running with everything you require in hours. That is security.

I have the good fortune to watch how developers use technology (new world) and compare it to the way bankers use it (old world). In both cases, the need is to share and co-operate on information. For developers the information is comprised of a large code base(s) and supporting requirement information. For business executives it comprises things like data, analysis, presentations, and plans.

First lets look at how this works and assume away from home office scenario:

Bank Executive preparing for a HQ meeting tomorrow:

• opens laptop – can’t access hotel wireless network because of hardware security constraints on laptop. Eventually hooks up using ethernet cable although this forces him to sit on the uncomfortable chair, because the wire is too short
• once online emails colleagues in different time zone to get the latest powerpoint after he realises his version on hard drive is probably not up to date. Also seeking the latest sales data because all he has is the end of August and now it is October. He has checked into SharePoint but it turns out the latest files uploaded are not the ones he assumed would be there and now he is freaking out.

Developer preparing to present to client tomorrow:

• opens laptop, while in the comfortable seat, signs in (to laptop) and accesses wireless network. Hardware access security limitations not required because …
• … he logs into github on the web (secure code repository) using SSH (secure keys) security through a secure tunnel. (incidentally, it is immaterial whether the developer logs in with Windows, Linux or Mac – same result – the consistency is at the code and network level, not the personal hardware level)
• he pulls down the latest code base updated by developers from multiple locations, safe in the knowledge he has the latest version, and works on tomorrows presentation. Download is fast because it a series of text (xml data) which is not assembled into anything meaningful until on the laptop. Contrast with the bank experience that downloads actual large powerpoints, complete with large images etc.

Lets look at what happened there and the opportunity for business. In the case of the developer, the information base is completely abstracted from the individuals who manage it. Security is maintained through different access levels at github. The control lies in github. Different access levels in github provide some people access to send changes to git, while all can view. Not all can submit (“commit” in git language) those changes.

For the Bank executive it is all as good as he is at last minute changes, and in the hope that folks back in the other time zone get his last minute requests and whether he can integrate whatever he gets.

What is going on here? Well there are a few things at different levels:

1. bank security is managed by licking down hardware and information. Hardware is locked down to become practically unusable, and often having the ‘smart’ executives use their personal gmail accounts to manage information exchanges (who will admit that method of keeping data in a handy cloud environment for access?)
2. developer security assumes ant device could access the information, and security is managed by secure key exchanges and digital certificates.

Which of the above is the more secure? Which is more efficient? This is a fundamental question for bank CIO’s. It will turn out that 2) is the more secure, and also cheaper, but …. and I can hear this now … if it is cheaper how can it be more secure?

Relevance to Bankwatch:
Back to GoToMYPC. I hate to pick on them, and if fact they are providing a valuable service that circumvents many of the bank executives problems, but does not solve the intrinsic problem of securely sharing information.

The Github solution solves access, solves version control, and solves information management control. What if someone took the Github example and build a git for information, ie presentations, spreadsheets, documents, data access? Sorry SharePoint but from the moment you insist on proprietary Silverlight to enter you fail. Access must be open to alternative operating systems to access.

A github type solution that retains latest and previous versions ‘in the cloud’ yet still secure would be powerful. Github is not an afterthought, but part of the development process. Developers create on their own desktop, then save to git as they progress. This two step process allows for efficiency of a local desktop but retention of latest information in the cloud.

There has to be a way to shift banks into this type of environment, rather than the current method employed by most that offers security by making it well nigh impossible to do anything.

The challenge for banks and information security suppliers is to do what developers did … go back to the fundamental needs of executives and managers, which at some level is not at all different than developers and revisit the strategy. Yes this will mean throwing out investment in expensive infrastrucuture but if the alternative is better, faster, efficient, and saves money then the opportunity of sunk licence costs is immaterial. Perhaps it is time to move beyond personal pride and seek a better world for all.

Thoughts and experiences of bankers welcome, and feel free to be anonymous on this, if you need to protect the innocent

DWP, is running an innovation experiment where they allow citizens to put their own applications on top of government data. Yes, that’s right: an API for the government.Show me a bank with API. You can’t, because there isn’t one. I have to go to a third party like Wesabe, who basically have to suck data out of banks without their permission, to get one. I think it is early days for what Direct.Gov is doing, but you can see the potential. More particularly, the fact of this experiments existence tell you lots about the sorts of things it is possible to do in the public sector.

Strange days indeed, and something that ought to worry bankers.

This fits with the theme here of no more business as usual, post crisis. The spreads in this low interest enviroment are simply not high enough to accomodate spreads like we saw over the late 90′s and early 2000′s. Furthermore and separate from the spread issue, the growth in credit will not be there either because consumers are unwinding unwieldly debt levels that are now disproportionate to asset levels.

The course banks must follow is rejuvenated product suites, and of course reduction of cost base, which is why Bain leapt right to branches.

Banks’ may need to close a third of branches’ | FT

Business consultancy group Bain concludes that UK retail banks face a tough future in which their return on equity (RoE) could be 50 per cent lower than pre-recession peaks.

Bain said that over the past two decades, leading UK retail banks have posted RoE – profit divided by equity – averaging 24 per cent and are unlikely to see those levels again.

The best business model in the world is also the simplest: make stuff that’s insanely great

Everybody’s searching desperately for business model innovation: Detroit, newspapers, record labels, banks. No market is left untouched, no value proposition sacrosanct.

Yet, the best business model in the world is also the simplest: make stuff that’s insanely great. Stuff that’s insanely great does what Prezi does — amazes, enriches, and inspires. That kind of stuff doesn’t need a hard sell, a new market, or a convoluted product range. It just needs to be.

The groundbeaker for me with this service, is the integration of a web app with an individuals online banking. This brings the outputs of the wealth of a social site into the personal world of online banking allowing the customer to investigate their finances and monitor progress against benchmarks.

Wesabe SpringBoard | Wesabe

Wesabe Springboard gives consumers a “smart” dashboard view of their account data and personal finances – guiding them towards value, savings and goal completion, and away from poor financial decisions. In addition, Wesabe Springboard includes community features that let consumers help each other by anonymously sharing advice, support and tips for getting the most value for their money. Drawing on Wesabe’s database of consumer spending behavior, Wesabe Springboard also allows users to benefit from the learning that comes from changes and patterns in how members shop.

Credit unions and banks can implement Wesabe Springboard through either a web services architecture or as a fully hosted web personal financial management (PFM) solution. Wesabe Springboard works with a wide variety of enterprise platforms, including .Net and Java. The web services option uses API-based integration to integrate into the financial institution’s existing online banking system.

Wesabe launched Wesabe Springboard in March and signed its first customer in just six weeks. For additional information on Wesabe Springboard, visit https://www.wesabe.com/springboard

I was reading the Obama speech in Ghana, and his references to the current and previous governments, including Jerry Rawlings which rang a history bell for me, so thought I would read up.  First off I checked what used to be my old favourite the CIA factbook, and it has not been updated since sometime before Dec 2008 [note highlight].

On the other hand a quick visit to Wikipedia had more than enough detail being up to date, including information about Obamas trip dd 10th July in the footnotes.  I copied one section from the history area below, and highlighted the notes about the recent election in 2009, something the CIA has not figured out yet apparently.

The efficiency and effectivness of the Wikipedia approach compared to the old style management and approval processes is stark.  [Incidentally, surely the CIA beaurocracy would at least update their site for the countries that their boss is visting?]

In fairness to the CIA it is probably impossible to maintain an up to date encyclopedia type site such as the FactBook within the constraints and context of their mandate.  To open the CIA up to a Wikipedia approach would not make any sense.  I only use this example to display that collaborative and engagement of the broader network wins every time for information dissemination.

CIA Factbook – Ghana

Formed from the merger of the British colony of the Gold Coast and the Togoland trust territory, Ghana in 1957 became the first sub-Saharan country in colonial Africa to gain its independence. Ghana endured a long series of coups before Lt. Jerry RAWLINGS took power in 1981 and banned political parties. After approving a new constitution and restoring multiparty politics in 1992, RAWLINGS won presidential elections in 1992 and 1996, but was constitutionally prevented from running for a third term in 2000. John KUFUOR succeeded him and was reelected in 2004. Kufuor is constitutionally barred from running for a third term in upcoming Presidential elections, which are scheduled for December 2008.

Wikipedia – Ghana

Rawlings soon negotiated a structural adjustment plan with the International Monetary Fund and changed many old radical economic policies; the economy began to recover. A new constitution restoring multi-party politics was promulgated in 1992, and Rawlings was elected as president then and again in 1996 to serve a second term. The Constitution of 1992 prohibited him from running for a third term, so his party, the National Democratic Congress, chose his Vice President, John Atta Mills, to run against the opposition parties. Winning the 2000 elections, John Kufuor of the New Patriotic Party was sworn into office as President in January 2001, and beat Mills again in 2004; thus, also serving two terms as President. In 2009, John Atta Mills took office as president with a difference of about 40,000 votes (0.46%) ^[23] between his party, the National Democratic Congress, and the New Patriotic Party, marking the second time that power had been transferred from one legitimately elected leader to another, and securing Ghana’s status as a stable democracy.^[24]

The variation here is that the Vendor must place the consumers product up for bif from competition when they are considering changing the terms, such as interest rates.  The consumer would then have the choice of accepting the change, or accepting one of bidders. (HT Payments News)

A Market Test for Credit Cards

We have an alternative solution, employing a market test of a proposed change. At the time when the lender proposes a unilateral change, it would be required to put the existing account balance up for auction on a LendingTree-like service that would allow other credit card issuers to bid for a chance to issue a new card and take over the existing balance.

Borrowers wouldn’t be forced to switch to the auction winner. They’d just be given the option. When an existing credit card issuer proposes a rate increase, it would be required to pass on the terms of the winning bid and a comparison with its own terms, and the borrower would decide whether he wanted to make the switch.

For Banks, Wads of Cash and Loads of Trouble | NY Times

The 79 banks that have failed in the United States over the last two years had an average load of brokered deposits four times the national norm

…

But the hot money also came with a high cost. To lure the money from brokers, banks typically had to offer unusually high rates. That, in turn, often led them to make ever riskier loans, leaving them vulnerable when the economy collapsed. Magnet failed early this year and Security Bank is barely hanging on.

When we assess leverage it is not just the quality of the assets, it is also the cost of the liabilities, which is what deposits are to banks – liabilities with an associated cost.

It is ironic that those deposits that banks are gathering across the US from other than their home state at high rates, are also FDIC insured.  So the US taxpayer has been passively promoting banks to take undue risks by gathering high cost insured deposits to fund their mortgage and loan growth.

This is just another element to take into account for The Great Unwinding of leverage in the financial system.  The deleveraging that takes place will result in smaller institutions, and much less value attributed to deposits in cash, due simply to a supply that far outstrips demand. The outcome will depend on whether the regulators institute limits on FDIC insurance, limits on brokerage or some hybrid of those.

Relevance to Bankwatch:

One more blow against the old system.  A banking business model based purely on arbritrage on interest is not viable, and highly susceptible to risk associated with leverage.  This leads to two conclusions:

1. Regulation: The unintended consequences of regulation such as deposit insurance are complex, and need to be considered by the regulators.  Those unintended consequences could be more expensive in the long run through higher taxes, than the immediate apparent benefit.
2. Bank models: Banks have historicaly been arbiters of money between lenders and borrowers.  Non Interest revenue from fees has been long considerd considered icing on the cake from interest revenue – essential icing, but nonetheless icing.  The new world is smaller and requires efficiency.  What if a banking model were built on fee revenue first?  This would require products and services that are seen as valuable by consumers, and it would drive different approaches than investment in expensive branches, ATM networks, and staff.

PS:  To provide a sense of scale of the problem, a back of the envelope calculation on some Canadian banks where I have an idea about the customer and staff numbers produces a customer to employee ratio of 150:1.  A similar cacluation on core banking (primary chequing with that bank) customers to employee ratio brings an incredible 50:1.  This hardly suggests that the investments in technology, branches and infrastructure over all the years has been effective.  Banks efficiency has been hidden from view by the growth in the financial system.  Much more to come on this.

An interesting tweak is the ability to have the money deposited with DOCOMO under the guise of a credit to your account, however this is deposit taking by another name.

DOCOMO to launch mobile payments service

Customers of DOCOMO’s i-mode™ mobile Internet service on the FOMA™ 3G network will be able to remit up to 20,000 yen (about 208 U.S. dollars) per transfer, basically just by inputting the payee’s mobile phone number. The payee receives a mail notification via their DOCOMO mobile phone and is given the option of depositing the money in a domestic bank account or having the amount credited to their monthly DOCOMO phone bill. The payee can receive remittances totaling up to 200,000 yen (about 2,080 U.S. dollars) per month.

It is a lucrative service with charges to payor and payee.

The charges per payment (including consumption tax) will be 105 yen for the payer and 65 yen for the payee.

Researched by Nobuyo Henderson

It walks the user through a set of relevant questions that source and validate the users investment needs, then produces an asset allocation model at the end.  For the self service type who wish to move beyond gut feel, and assess one portfolio or their entire portfolio, this tool is a useful addition.  Its the kind of thing that is worth an afternoon, and taking the time to properly assess the approach you would wish to take.

These kind of tools are a good start in self service, but the key is how they maintain contact with the user over time.  In this case it is starting to do that and the allocation results can be executed simply as new trades.  They key however will be how this type of service provides ongoing feedback over time.

Here are sample shots from a demo set up.

To be clear it is probably not for everyone.  It is however useful for those who follow the markets closely and daily providing various filters for different news sources, including web, blogs, and EDGAR.  The interface is work in progress, and be sure to turn off the ‘bubbles’ so you can see what you are doing.  This is a beta, and lots of feedback is requested.

There are a limited number of invites for those interested, and a very simple sign up by clicking through here for anyone interested.

This is an invitation for your private SkyGrid account

SkyGrid is a web-based financial news platform that delivers high quality financial content from trusted sources, in real-time.  SkyGrid gives its members the ability to filter financial news in real-time with sentiment, source type, and even real-time clusters that show which companies are being discussed the most in the news.

People who see it LOVE SkyGrid – techie and news junkie Robert Scoble has compared it to crack, and BusinessWeek just named SkyGrid founder and CEO Kevin Pomplun as one of this year’s “Best Young Tech Entrepreneurs.”  SkyGrid’s first members included leading financial institutions like BlackRock, Bank of America and J.P Morgan.  Today SkyGrid is free, but by invitation only, and invitations have been hard to come by.

The people made happiest by SkyGrid are those who are passionate about stock market news, business news, and financial information.

Can’t help but think there will be unintended consequences after the 5 years are up, built certainly the immediate consequences will be more palatable than normal layoffs, which generate acrimony, as well as an expense one time charge.  This approach will drive accountants nuts.

It will allow the bank to make future hiring plans, and attrition management with some knowledge of the future.

Bank pays staff to take five years off | Daily Telegraph

Employees of BBVA, Spain’s second biggest bank, are being offered 30 per cent of their usual salary in return for staying away from work for between three and five years.

Anyone signing up to the scheme is guaranteed a job when their extended leave comes to an end. They will also have their health care costs covered for the length of their sabbatical.

Researched by Nobuyo Henderson

I read this piece from Dave over at Digital Money Forum, and it highlights a central problem that traditional financial services falls into.

The 50 year plan : Digital Money forum

That sounds like the Greek restaurant will have to give a British cardholder a couple of pages of A4 and make sure that the customers reads them before they punch in their PIN.

Anyway, the point is that for banks, the PSD comes at an interesting time when transaction banking is becoming more central to strategy. The threats from both new entrants and substitutes are, according to Bob (and I agree with him), high. In these circumstances, regulation is turning from a moat that competitors cannot cross into a millstone around the incumbents necks.

The problem is in the complication and diversification of businesses contained within a typical bank.  The problems are surmountable, but first they must be recognised.  The issues arise in part from interpretaion of regulation, and in part from the diverse nature of modern large banks.

Relevance to Bankwatch:

Regulation:

It goes without saying that there is host of regulation that must be complied with.  As the events have occurred over the last two years, regulation has become more of a factor in oversight of banks.   In my three part piece earlier this year, The Great Unwinding, (title refers to unwinding of debt and deleveraging of households and institutions) the point was that as the economic pie decreases is size, and at the same time the role of government increases that the effect will be to produce two types of banks:

1. Financial utilities; much as you turn on your tap for water, or plug into the wall for electricity, you will plug into these banks for basic services.  Nothing new, nothing extreme, and nothing innovative, unless the government tells them to do it and even then that won’t work – refer back to Daves piece above and SEPA.
2. Innovators: while in the minority, this group will be comprised of those who keep their heads above the trees and see that rather than a time of crisis, this is a time of opportunity;  opportunity defined as a new market that is diametrically opposed to the market of the last 10 years for banks.

Bank bureaucracy:

Banks have always been bureaucratic but the last 15 years has seen bureacracy become triumphant in many institutions.  It began to be a problem in the mid 90′s when this new fangled thing called internet required that the entire bank be properly represented at the point of a click.  Having spent 100′s of years operating independently, to ask product managers to talk with other product managers, and in the same room as electronic channel managers required new levels of collegialism that was never requested before.  There were no rules nor common norms that could be held up as principles to guide the discussion.

Everyone at the table would claim to be ‘customer centric’ and representing their customer.  Other approaches would say ‘the bank’ owns the customer, but then who represents ‘the bank’ in that conversation – the Chairman?

It also happened that we also saw a rise in regulation for privacy, security, complaint handling, ecommerce laws all of which brought even more partners to the above table.  The result takes us to Daves somewhat humourous, but too close to the truth point above about having customers complete a two page document prior to punching in their PIN.

Market differences:

So in a climate of crisis and regulation, it will be easy for the majority to reduce themselves to financial utilities.  It comes naturally to large organisations, who have not solved the riddles of focus and simplicity.

The innovators on the other hand will see the opportunity because they can see through the morass of problems and zero in on that opportunity with laser like focus.

I blogged earlier about the changes in the economy, and while that post applied to the US context, this equally applies to all western economies, including Canada, UK, France, Germany, and Spain as obvious examples.

These macro factors will play a large role in US banks and credit unions strategy design for the next 5 years.

1. no consumer purchase driven economy in US – with the implication of extended higher Government spending for some time to counter
2. US consumers save (increasing savings accounts and paying down debt)

When we think about banking over the last 10 years, the predominant consumer products that saw innovation have been borrowing products.  Lines of Credit, Mortgages, Credit Cards and Consumer loans have been pre-eminent.  If we read and think carefully about Timothy Geithners comments above, and I share his view, the nature of banking products and services that see growth for the next 10 years will be different.

Economic recovery does not mean a return to things as they were.

The dominant products will shift to becoming investment accounts, savings accounts, and money management services.

As consumers seek to save (economic terminology for hoarding cash, or repaying debt) they will be watching every penny.

As money is saved or spending is reviewed the requirement for real time information is added to the mix.  Questions will be asked, such as;  ‘can I afford this purchase this month’  or ‘what if I waited till next month’, or ‘how much have I saved this month’ or ‘how much have my total credit card balances reduced’.  This introduces the need for new payments services, and that are adding value by connection to money management services such as Wesabe, or Wells Fargo spending analysis service.

These questions should drive new and innovative services that banks have not been accustomed to creating.  It requires new thinking and re-alignment of strategic resources.  It is much easier for new entrants to banking to start small and simple in this new environment.  A mix of new entrants and smart existing players will be the innovators, and the winners.

The Latest and Greatest

FinovateStartup is the only event exclusively designed to showcase the innovative work of financial technology startups.

With a unique format designed to foster great conversations and new ideas, this is truly THE event for people running and interested in financial and banking technology startups.

Interested in participating in FinovateStartup next year? Please email Eric Mattson at eric@netbanker.com.

Its clean, bright, and worth checking out.

wesabe

Wesabe Site Redesign

If you haven’t logged in to Wesabe lately, you’re in for quite a surprise. We’ve redesigned every single page of the site and have been getting some rave reviews about our new look!

I prefer to think of this as a shift that will profoundly change things for the next few years, with some good and some not so good elements in that shift.  It may be good that the banking industry will be shaken up, and out of that some innovation and better services will appear.  The less good part is that more bank customers will have to work harder and longer for less money, and accumulation of wealth will return to a savings culture rather than an asset accumulation one.

All this provides a different prospect for financial services, and products will need to be restructured or invented to match those busier, poorer customers who nonetheless have financial goals such as debt reduction and wealth accumulation for retirement.

The paper outlines three core results of financial crises.  This is based on empirical evidence of 18 post war crises in the developed world, including “the big five” (Spain 1977, Norway 1987, Finland, 1991, Sweden, 1991, and Japan, 1992) along with some developing country crises (the 1997–1998
Asian crisis, Colombia 1998; and Argentina 2001.

No real surprises here;  Low asset values, high unemployment, and high government debt.  Click through for details (13 pages).

The Aftermath of Financial Crises pdf – Reinhart (Univ of Maryland), and Rogoff (Harvard)

First, asset market collapses are deep and prolonged. Real housing price  declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years.

Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment.

Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes.

Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system. Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies. But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.

Oddly enough, when I went to ingdirect to compare rates, I could not even locate the rates on a site that has become very complex somehow.

Ally Bank may have a winner in focussing on their three principles that will resonate with most consumers, and it is backed by the reputation of GMAC.

allybank.com

“The brand is founded on three principles:

1. Talking straight,
2. doing what is right for the customer, and
3. being obviously better than the competition,”

said Sanjay Gupta, chief marketing officer.  “It is a promise from our company to our customers.  We believe that being direct and honest is the best way to build lasting customer relationships.” Gupta added, “Given the recent financial market turmoil, people are looking for a safe, honest and efficient place to save and grow their money.

The company developed the Ally brand following extensive conversations with customers who clearly expressed the need for a trusted bank partner.  “The name Ally aptly fit the character of the brand,” Gupta said.

Today, the company launched a new Website, allybank.com, along with its new 24-hour customer call line, 1-877-247-ALLY (1-877-247-2559).   Depositors can open bank accounts online, by phone or by mail.

Incidentally I noticed GMAC were beneficiaries of the SCAP support, and I wonder if this new offerring is in some way related to a change in focus or business model, related to deposit gathering.

Gartner make the point that fundamental shifts are occurring online, and while not specific to banking, except in pockets, the directions at play are too fundamental to ignore as being permanent.  Sounds like an interesting report.

Gartner Says Banks Need to Be Ready to Take Advantage of the New Age of Social Banking | Gartner

“Currently many traditional bankers tend to reject the concept of social banking as a fad while others refuse to recognize or accept any degree of threat posed by such new phenomena,” said Alistair Newton, research vice president at Gartner. “Although bankers may see current low usage by consumers as a permanent source of safety, this disregard for changing consumer behavior with social networking generally may mean that they miss the possibility of fast, viral uptake of social banking.”

Consumer interest in social networks and social banking does not mean that consumers expect or want their banks to be social networks like Facebook or MySpace. In a January 2009 survey of 3,988 consumers who use online banking (1,970 in the U.S. and 2,018 in the U.K.), the results showed only a small percentage of respondents (7 percent in the U.S. and 8 percent in the U.K.) said that they were interested in using an online social network on their bank’s Web site to talk to other customers. Out of this small percentage, most were interested in using social-network information about how their banks compare with others and to find information to simplify their financial and personal lives. Although these consumers are few currently, they provide clues about the desires for social banking and are likely to be the first adopters and therefore online trailblazers for social banking.

“What has become clear from the growth of social networking as a phenomenon has been both its speed of growth and the viral impact of such communities,” said Ms. Cohen. “Ideas are picked up, established and disseminated within short time scales, much too short to allow late entrants to the market to take advantage of the opportunities that will arise. Banks need to be positioned to take advantage of this shift to a new age of social banking.”

Starbucks should start banking | FT

What if Starbucks opened an online-only retail bank offering competitive deposit rates and a modest range of loans and mortgages? It could do that by partnering with a finance company such as ING, which has the appropriate banking licences.

All it would need to do is install ATM machines in its outlets, which would involve investing some money but would allow it to get more out of its existing branches.

National supermarkets in the UK, such as Sainsbury and Tesco, have opened retail banks and placed ATM machines in their branches, but there is no national grocery chain in the US with a comparable reach. Even Wal-Mart lacks outlets on most urban high streets.

I recall the brainstorming sessions in the 90′s at the bank, where the discussion about competition arose not from other banks but from:

• Starbucks levering their distribution and cards as a bank
• ebay or Amazon offerring a credit card
• internet only banks – ING was on the horizon – mbanx and Wingspan already out there
• whether to join the S1 online banking commoditised platform
• offer an All in One account that pulled together lending and deposits into one account
• how to deal with the role of aggregation- offer it, join it, or ignore it
• bill presentment – same idea – offer, join or ignore
• shift in business model from generalist to:
  • product (manufacturer) – offer loans and deposts through others channels
  • distribution (channel) – sell products & services of others – Open Finance (Forrester)
  • segmentation (customer type)  – focus on a niche market, although most interpreted as the generalist, all things to all market which is where most banks ended

Relevance to Bankwatch:

The problem today is that Banks are on strategy defined 6 – 8 years ago to bricks and clicks, focussed on customer retention and wallet growth.  Customer Relationship Management (CRM) became the strategy de jour.  Who would claim that has worked?  Seibel disappeared inside Oracle for a reason.

Banks are all on the same strategy, focussed on mortgage as the entree, and upsell with other services later.

There is nothing out there that aims at shifting the balance of share of market in a substantial way.  This is not about acquisition or mergers – we have done that, and “too big too fail” is too fixated in everyone’s radar now, or until capitalisation is fixed, in any event.

No, this is about business model shifts … shifts that would have a target of:

• double digit percentage shift in share of payments,
• extraction of share of deposits and payments from an existing industry (the Starbucks example),
• exponential elimination of costs relative to competition
• focus on what your are good at and eliminate the stuff you are not good at

Business models –

Mr Bank Chairman …  what is your business model, and how is it different than the competition?

Supplementary question -

Who is your competition?  Do you lost sleep over Citibank and Wells, or Tempo and Wesabe?  Does your answer worry you?

PS …  as I finish this post the most telling thing is something I have become acutely aware of.  The blog categories I set up 5 years ago no longer apply, until I do a retrospective post such as this.  Either those were really bad ideas, or ideas yet to come.

The US stress tests specifically address the impact on banks under certain sets of future assumptions for economic growth and stability.

Spring forecasts 2009-2010 | European commission

The Commission forecasts a sharp contraction of the EU economy by 4% in 2009 (relative to a positive growth of 0.8% in 2008). Almost all EU countries are severely hit by the worsening of the financial crisis, the sharp global downturn and ongoing housing market corrections in some economies. However, with the impact of fiscal and monetary stimulus measures kicking in, growth is expected to regain some momentum in the course of 2010 (annual growth forecast for 2010 stands at -0.1%). Figures are essentially the same for the euro area as for the EU as a whole. These figures represent a significant downward revision compared to the autumn forecast and the interim forecast of January 2009.

spring-forecast-2009-publication15048_en [pdf]

So far the news is not good.  We have US, Japan, and now EU all noting significant downward adjustments to their forecast for 2009.  Magically, they all seem to agree 2010 will be just fine.  2010 aside, the consensus for the big three are 2009 GDP drops in the 4 % – 6+ % range.

Here is an extract of the baseline forecasts used by the Stress tests, contained in their methodology document for SCAP (Supervisory Capital Assessment Progam).

The short view is that the assumptions for GDP growth in 2009 are approximately 1/3 of the latest forecasts.  Put another way 2009 is going to be 3 times worse than the forecast used in SCAP.   This is only May, so one can only assume that on a probability scale the opportunity for additional downward revisions are as possible as any other prediction at this stage.

The debate amongst BofA, Citi and the government on whether they ought to raise $5Bn in capital is ridiculous, and counterproductive.  As the economic forecasts show, the amounts required are not going to be debated in the $1 Bn range – this needs vision that produces 10′s or 100′s of billion in improvement such that the organisation can leap ahead of the economic crisis and look out 10 years, not 1 month, which seems to me to be the current landscape for banks.

Incidentally, to place $5Bn in perspective, Merrill Lynch paid out $3.6 bn in bonuses at the end of 2008.  Geithner should not even take a phone call from any bank who wishes to discuss anything thats less than $20 bn.  A debate over $5bn is ludicrous.

All this to say, that banks are stuck in a classic rat hole and surrounded.  Which bank and which leader will step up with vision for the future that carries banks on beyond 2011?

Relevance to Bankwatch:

Banks need to take a leaf out of Sergio Marchionne, Fiat chief executive’s book.  He is in Germany this morning proposing a deal that will take advantage of the current climate, and look to take advantage of infrastructure provided by Vauxhall, Chrysler, Opel and Fiat to structure an effective platform around car types that consumers actually want and need, ie smaller, cheaper and more efficient.  Already he is getting positive reaction to his plan, and these meetings only took place today (Monday).

He hopes to complete the transaction by the end of May, and list shares of the new company, tentatively called Fiat/Opel, by the end of the summer.

Mr Marchionne said Fiat and Opel would reap synergies of €1bn a year by merging their small B and midsize C segment car platforms, and absorbing Fiat’s ultra-small A platform and Opel’s upper-middle D platform.

Note the timing – he is going to do this in one month. This new conglomorate will involve hard decisions and layoffs.  This is the hard reality of the adjustment required for the new economy.  Getting through the crisis is not a return to 2007.  It is a fundamental shift to a smaller and different economy.

Where are the bank visionaries now?  Are they becoming so bogged down worrying about beaurocratic discussions with their new government masters and defending bonuses and perks that they have lost sight of the real goal?

I like where Netbanker is going and I am thinking the same way.  As a group we used to be focussed on online banking evolution, but that horse has left the barn.  Banks are too focussed on getting issues of capitalisation and asset values.  As those matters evolve and the banks we used to look to for innovation develop into financial utilities for now, (most large banks) that are focussed on capitalisation, assets values and survival,  the field is opened up for start ups such as Obopay to redefine payments.

Finovate is the best source of this value chain shift imho, and one for industry watchers to note.  Congrats Jim on surpassing last years registrations.

FinovateStartup 2009 Conference Registrations Surpass Last Year | Netbanker

1. A bank optimized entirely around the mobile channel
2. A new approach to decoupled debit
3. Several approaches to dramatically lowering transaction costs at
   the online point of sale by bypassing Visa and MasterCard
4. A mutual fund created to invest in unsecured personal loans
   originated online in a social environment
5. New peer-to-peer services supporting borrowing and payments
6. The integration of financial management tools with payments accounts
7. Platforms that allow financial institutions to customize their own
   financial offerings around market segments and/or personal finance needs
8. New, transparent marketplaces for buying and selling debt instruments in large quantities ($ billions potentially)

The impacts on banks will be seen through three broad strategic drivers:

1. Interventionist regulatory framework: all of the scenarios see new regulation.
2. Back to basics banking: survivors will reorient their business around client needs and core competencies.
3. Restructuring in alternative funders: hedge funds and that related industry will see structural changes – this may or may not have direct impact on banking, but cannot be ruled out.

… however banks and financial services will be offerred through two broad service models:

1. Financial utilities – significant operating restrictions in light of implicit and explicit government guarantees underpinning the business
2. Risk takers – not clearly defined as yet – will be dependent on regulation applicability

These models are at opposite ends of the spectrum.  Where it gets interesting to to apply to real world banks.  Barclays, Lloyds, Bank of America, Wells Fargo to name four.  Will each of those be utilities or risk takers based on what we have seen occur to date?  Did Wells really believe they could receive government money and arrange an employee boondoggle?  Did Bank of America really think they could move executive bonuses forward and buy carpets close to $100K.  The costs (bonuses and jets) and politics (renovations and moving dates) are simply too compelling to  ignore.  Banks cannot operate in a vacuum anymore.

My context here is simply an evaluation of the impact on financial services offerrings, and whether we can expect more or less innovation, and from whom with the above as context.

Yesterday’s piece within managing during a downturn in the FT rings true but will this come from banks:

Keeping a keen eye on consumer behaviour: By John A. Quelch and Katherine E. Jocz

More important, recessions often accelerate rather than decelerate underlying trends in consumer behaviour. Take use of the internet. With consumers spending more time at home rather than going out, internet use promises to increase. At the same time, consumers anxious about current and future job opportunities are more keen than ever to develop the networks that can help them with advice and job leads. Look for professional network sites such as LinkedIn to do well and for social networking sites such as Facebook to reach out more to professionals.

Current state of innovation in financial services

Jim Bruene at netbanker has the Finovate 2009 conference coming up this spring.  Jim is quite plugged in to the current state of financial services innovation, and his blog covers that well.  The conference is a paid participation model so the attendees are from that group and offer a good summary of the current state of those that believe they are innovating financial services.  I pasted the current attendee list below with links to each site.  I took that list and evaluated each as to which market and which category they fell.  The results were listed here and summarised as follows:

• 37 participants in Finovate 2009
• 18 (50%) are in personal finances
• 2 are in mobile
• 4 are in social financial services – i.e. providing otherwise typical financial services but without a bank as intermediary.
• others spread fairly equally over payments, lending/ investing, lifestyle, and fraud

I left that review with two conclusions:

• majority of innovation is either in support of existing financial services
• There are too many participants in the financial planning space
• mobile is under represented

Relevance to Bankwatch:

I did not know what to expect before this review of the current state of innovation and was initially hesitant to form a conclusion.  Let me say I wish all these startups well and it is unfair to evaluate them in the context of the global financial crisis, yet that is what I am doing.

The level of innovation is lower than I expected relative to financial system change.  Most innovations are in suport of existing financial services.  Since 1997 it has been obvious that the next stage for online banking would be financial planning and budgeting – taking data, forming conclusions, and offerring help.  Yet few have developed a better mousetrap in this space.  This category fits well within the current financial system model.

Wesabe comes closest to novelty by driving a new model aggregating amalgamated yet abstracted customer data and using it to offer insight to members.  This use of data crosses proprietary bank lines and it is incomprehensible for a bank to offer this innovation.

The other category that promises change is social lending / investment.  This category offers the potential for borrowing and lending with no bank between the lender and borrower.  This model is innovative.  [disclosure:  I am involved as CTO with CommunityLend]

In conclusion we have 5 out of 37 that offer the promise of systemic change to financial services.  Perhaps 15% is good.

There are no banks in the innovation category.  This is significant because the list is developed based on work that predated the crisis.  If banks did not offer leadership and innovation before the crisis, the constraints in the new system suggest that true innovation will arise from outside banks’.

Appendix:

Finovate Startup 2009 lineup (as of 2 Feb 2009):

• Acculynk
• Aradiom
• BillShrink
• BudgetTracker
• CalendarBudget
• Centrro
• Cooler Inc.
• CreditArray
• Credit Karma
• GoalSpring
• Expensify
• Green Sherpa
• Home-Account
• iBearSoft
• iThryv
• Jwaala
• kaChing
• Kapitall
• Lending Club
• Looniesdesk.com
• Mint
• Moneta
• NCore
• Pertuity Direct
• Portfolio Monkey
• Prosper
• Receivables Exchange
• Rudder
• Silver Tail Systems
• SimpliFi
• SmartHippo
• SmartyPig
• Strands
• Syphr
• Transparent Financial Services
• Victrio
• Wesabe
• ZimpleMoney

The WEF and IMF reports are stored on the blog here.  The only reason for a series of posts is that this is work in progress and the posts would be too long otherwise.  As to why I care – I care because the future of financial service innovation will be impacted.  If your bank is to become like the gasworks around the corner, where will be new thinking come from?  Before we get to that, we need to understand the degree of change we are undergoing here.

The Great Unwinding

Why that title?   Let me say there is no political bias here – the imbalances that produced the growth over the last 20 years lie in these areas:

1. expansionary monetary policy (excessive money supply)
2. expansionary fiscal policy (reduced taxes)
3. excessive financial deregulation
4. ill considered use of credit and leverage

To place this in perspective consider – asset values represented by equity and financial market investments plus real estate values have reduced by 30 – 70% in aggregate depending on where in the world you are.  Meantime debt levels are substantially unchanged.  Thus leverage has increased exponentially and standard credit practice requires this to be rebalanced.  Hence the Great unwinding of leverage to return us to normal.  We can forget about new debt being sought to solve the leverage problem because new debt increases leverage.  This may offer context for governments complaining about banks restricting credit – in fact they are simply doing what is right for people, business and the economy.  Debt is always tied to ability to repay through asset value or income.   Anything else would be tantamount to negligence resulting in immediate bankruptcy.

Unfortunately levels of debt in the world have increased to levels that make no sense.  In the US credit market borrowings have increased from 160% of GDP to 350% of GDP in 2008.  This increase has been roughly equally distributed between consumer debt and financial services debt.

The Great Unwinding is directed at consumers and banks.

The result of the crisis to date is the G20 agreement last November to focus on three implications for the financial system:

• expanded scope of regulatory oversight
• constrained financial institutions
• increased global regulatory co-ordination

To Big to Fail

The overall context for financial services will be seen through the lenses of regulatory increases, back to basics banking, and structural changes for financial services that we have not anticipated.  The law of unintended consequences will get a full workout for the next 20 years.  Global governments will be expected to zero in on this attribute of Too Big to Fail, which implies certain banks are of “systemic importance” to the country or the world.

This will effectively split the financial community into two distinct sets:

1. financial utilities – significant operating restrictions in light of implicit and explicit government guarantees underpinning the business
2. risk takers – not clearly defined as yet – will be dependent on regulation applicability

Those risk sets will provide a high level model overview so lets consider some models and model attributes.

Financial Utilities

Heightened disclosure requirements to ensure transparency of all risks and that those risks are mitigated.  They will be required to devote capital to liquidity and upgrade coverage of market, credit and counterparty risk.  This will result in significant or complete elimination of complex and hard to value securities of the likes of ABCP and derivatives.  Off balance sheet vehicles will be much less prevalent.  The deleveraging of banks involves elimination of derivatives.  The debt level of the world has to be reduced.

Generally the outcome will be that these institutions will not be able to grow their business and their assets faster than their capital base. Instead investments in assets (loans) will be reduced to reflect capital levels as consumers and business deleverage too.   This will represent a return to basic banking.

Financial utilities will be forced to hold more capital against assets relatively than they are today.  Look for changes in the Basle accord.

Finally these utility banks will be required to hold additional liquidity with caps on short term funding reliance.  The report notes this is already resulting in intense competition for deposits and longer term unsecured funding.  One outcome will be higher cost of capital for these financial utilities resulting in narrower spreads.

A final note here applies to smaller banks, particularly to the US with 8,000 + smaller banks, who are each small enough that they do not individually pose systemic risk to the economy.  Those banks will be forced to minimise and manage growth to remain small, or seek alternative business models to survive.  This could pose the first glimmer of hope in this otherwise dark picture of the world of financial utilities.  More on this in later Parts.

Back to Basics Banking

Trends to watch for here are investment bankers refocussing on client business and away from business as a principal.  Their traditional roles of corporate finance, advisory, brokerage and asset management driving fee revenue will be front and centre.  The business where the investment bank would operate as a principal taking positions in commodities, equities, ABCP, CDO’s and derivatives is likely to be a distant memory.  If that bank is in the utility category this will be prohibited by their government superiors and regulation – if they are outside the utility model acting as a principal will be deemed too risky by internal corporate governance.

Investors will ensure the separation of customer deposits from investment banking capital.  Even if there are loopholes in new regulation that might permit mingling of retail deposits and investment banking, smarter investors who have been burned once will not permit that to occur.  The practice of aligning like capital with like investment categories will return to the fore.

Two stages

We can expect the process to follow two stages.  The first will be one of repairing damaged balance sheets. Expect capital raise requests, reduced lending supported by reduced lending demand, and periodic asset write downs as loans and toxic off balance sheet items have their negative impact brought into the income statement and capital account.

This will be iterative because there is no practical way to attribute the entire impact of the 2009 depression in one balance sheet snapshot.  The only practical way to do that is to value any banks assets at zero which is clearly an accounting exaggeration.  However in absence of absolute clarity forcing banks to ‘mark to market’ for all asset categories that would drive out incredulous results, expect this continual iterative deleveraging, and becoming smaller as a good thing.

Across the globe the write downs through this crisis of nearly 1 trillion US dollars exceed new capital raised by a mere $78 billion – translation – the capital raises and write downs are managed to roughly balance.  It should be noted that if the write downs are driven to exceed appetite for the capital raises we will have an entirely new crisis and note this has a fair probability of occurring with Gordon Brown pressing banks on just this aspect to the point that British banks are almost valued at zero now.  Such events surely drive the financial utility model to arrive sooner and more broadly across more banks than might otherwise be the case.

The second stage will see ‘repaired’ banks’ refocus on client centric activities.  This period will offer some new hope for innovation, tempered by the limitation associated within those that are relegated to existing as financial utilities.

Relevance to Bankwatch:

Banks as we know them will cease to exist in the coming years to 2012.  While we will still see banks on the corner and on the web, see debit and credit cards in our wallets, the organisations behind those facades will not be the same as before.  These organisations will be engaged in a desperate shift to deleverage – to reduce debt.  The result will be dramatically smaller balance sheets than we see today.  Better measures than return on equity will be used to follow success or failure – I expect to see “debt to equity” which has been traditionally forsaken in banking to return as a central measure of comparison between banks.

We will have some banks driven by government ownership with those that are not ‘owned’ to be driven by Central Bank influence.  These influences during this time period will align with consumers desire for security and safety as confidence gradually returns to the economy.

There will be differences between US and Canada, and UK and the rest of Europe but the directional trend will be similar towards large banks becoming financial utilities offerring banking as hydro companies offer electricity – reliable, safe and always available.  The internal focus in those organisations will be fierce working to ensure their government masters are satisfied, and the likelihood of new innovative products or services is very low.  The appetite for risk will be reduced to zero during this period.

The unknown remains those that are not in the ‘too Big to Fail’ / government owned financial utility category.  Largely composed of smaller banks and credit unions, this group offers potential for innovative change while the others go through the balance sheet repair process and seek to build sufficient equity to buy out their government masters.

Part 2 – will focus on what we can expect to see beyond 2012.  The Future of the Global Financial System report highlights four scenarios that cover the range of expected outcomes, and that will be the backdrop.

As always thoughts, analysis, and views always appreciated.  This will be the most challenging series I have done, and I expect to miss stuff so assistance is welcomed.

• markets do not speak in human tongues
• lessons in art, and music in communication
• The Art of Possibility – book
• everything can be viewed two ways – positive or negative
• possibility = luck or possibility = the norm
• both are available to everyone – it is a deliberate choice
• Two shoe salesmen in th 1800′s sent to Africa;  #1 – no opportunity they don’t wear shoes.  #2 – glorious opportunity – no-one has shoes
• it is not the circumstances that are crucial – it is the choice of how we speak about the circumstances
• it is a matter of leadership – you have a choice – pertinent in the context of the world crisis
• orchestra players rank same as prison guards on morale.  Chamber musicians rank #1 (conductor or no conductor)
• top down, right thinking hierarchical – old style leadership is no longer sufficient
• question:  how do you make peoples eyes shine?

Summary – we have a choice as to how we can approach the current crisis – an opportunity or a death spiral.

This photo from the FT Monday exemplifies the state of the US Auto industry today.  The smiles, the protruding jaw, the “in your face” defiance in face of adversity – says it all – supported by the sub-headline “carmakers in drive for more government support”.

Where is the quiet thoughtful strategy to re-invent themselves and accept that the opportunity that crystalised 34 years ago with the oil crisis has been woefully lost.  Instead of magically rolling out electric cars all of a suddden as if they were always on the plan, lets hear the overall plan to change, and describe what the company will look like even 10 years from now.

Related example:  Abu Dhabi have made a significant investment in the non-oil future, and noted a clear vision of their future that is surprising a lot of people, including UK and US political leaders.

Gulf Oil States Seeking a Lead in Clean Energy | NY Times

“Abu Dhabi is an oil-exporting country, and we want to become an energy-exporting country, and to do that we need to excel at the newer forms of energy,” said Khaled Awad, a director of Masdar, a futuristic zero-carbon city and a research park that has an affiliation with the Massachusetts Institute of Technology, that is rising from the desert on the outskirts of Abu Dhabi.

Relevance to Bankwatch:

It seems to me this is precisely not the moment for bravado, and while bankers are less flashy, many tend to suffer closed thinking, and that is being perpetuated with all the other problems that abound in banking today.

I would suggest this is the time for Banks to learn the lessons of other industries such as the Auto industry, and bring out those quiet people in the back that have been thinking about this for years, by pooling knowledge and views from across the organisation.  Consider implementation of a Brainpark type tool to co-ordinate and democratise knowledge and thinking.  As Google notes their best ideas appear from the least likely sources.  The best ideas do not have to be formed within traditional hierarchies, and in fact are highly unlikely to appear there.

PS …  any snappy captions for the above photo   ?  Feel free to leave in comments – link at top of post.

Today I was pleased ot find this site yworking.com that is written by a Gen Y’r and snf focusses on Gen Y at work.  It is insightful. and much to learn from here.

Relevance to Bankwatch:

Many of the views will challenge existing thinking and help to force that ultimate question – do we try to  change the generation, or do we change the strategy.

Supplemental question – which approach is most likely to succeed?

We have opened up our platform to financial institutions that wish to establish a student loan program

The matter of regulation of the industry is now certain, at least in North America, and no doubt other jurisdictions will follow.  The other matter which is front and centre here, aside from how well they are doing it, is the potential for integration of effort between traditional FI’s whether Credit Unions or Banks, with social lenders.

For years Banks have attempted to reduce their costs through introduction of so called cheaper channels, and while they have gained from reduction in traditional tellers the reality that the bease promise of a cheaper platform has not been met.

The reality is that most bank innovation efforts to date are quite bank centric and draw customers back into their current model.  I think true innovation is likely to take place outside the current bank model.  That is why it is so important for the nascent industries such as social lending to be able to gain a footing, and while it takes time, it is useful to see Lending Club, Prosper Marketplace, Fynanz, and Greennote all active with the securities regulators.   [note Lending club is already up and running under SEC approval]

So I am a supporter of [reasonable] regulatoin in order to get the new industry of social lending operational and to help drive sustainable innovation.

Galbraith is quoted as relating all banking innovation to role of debt.

Originative Sin  – the future of banking | Financial Times

Sceptics highlight obvious costs. Galbraith, in A Short History Of Financial Euphoria (source of the earlier quotation) emphasised the pervasive role of debt: “All financial innovation involves, in one form or another, the creation of debt secured in greater or lesser adequacy by real assets . . . All crises have involved debt that, in one fashion or another, has become dangerously out of scale in relation to the underlying means of payment.”

And Andrew Hilton of Centre for the Study of Financial Innovation, a London-based think-tank, argues:

that “you can make the case that banking is the only industry where there is too much innovation, not too little”.

There is much discussion of ABCP of all types, including derivatives, CDO, CDS, sub-prime mortgages etc.

There is also the role of regulation, and how banks use innovation to guard against regulation.

A more fundamental explanation of why innovation can be counterproductive reflects a desire to escape the heavy hand of the state. Merton Miller, the late Nobel laureate, declared in a 1986 paper that “the major impulses to successful financial innovations have come from regulations and taxes”.

If that makes innovation sound subversive, regulatory arbitrage (locating a trading business in a place that has the laxest local laws) can nonetheless have economic and social benefits if directed at bad policy. The US in the 1970s, for example, responded to rising inflation by reviving a Depression-era measure called Regulation Q, which put a cap on deposit interest rates in the hope that by keeping banks’ cost of funds down, mortgage loans would be less expensive.

Then finally there is the counter-intuitive role of regulation, and the law of unintended consequences.  The introduction of Basel 1 & 2 while designed with the notion of ensuring banks were better capitlaised, actually had the opposite effect in two marked ways:-

1. a flawed definition of capital (tier 1 and 2)
2. a shift to off balance sheet debt not adequately captured by Basel.

Measures of leverage based on Basel’s “tier one” capital ratio, which were the main focus of analyst attention, appeared less frightening than those based on conventional accounting, which revealed a more disturbing picture that went largely unobserved. The outcome was that banks ended up more highly leveraged than most hedge funds. Nothing illustrates better how the law of unintended consequences can contribute to financial blow-ups.

[Note:  this is why more regulation is not necessarily better;  elimination and redefinition might be better]

Relevance to Bankwatch:

As the article rightly points out, innovation is not restricted to debt, and can involve internet, cards, and other technology, all of which can serve customers better and reduce costs.

However the main message I took from this article is that banks are battening down the hatches, and little innovation will be seen from most in 2009.  What a perfect oportunity for some bank to develop customer innovation, that does not increase risk, but does serve customers better.

This from the first post by John Stumpf, president and CEO of Wells Fargo & Company.

The Wells Fargo – Wachovia Blog

One way we’ll keep you updated on what’s happening with the integration of Wachovia and Wells Fargo is through this blog. Here we’ll share news and information, and you can “join the conversation” and let us know along the way how we’re doing and what we can do better to make the transition as smooth as possible.

First the Friedman piece – he reasons that upon re-entering US after a trip to Asia that the differences in technology and infrastructure are dramatic, and signal America is in a state of disrepair, that and that GM is merely symptomatic.

Time to reboot America | Friedman

It actually started well, on Kau Sai Chau, an island off Hong Kong, where I stood on a rocky hilltop overlooking the South China Sea and talked to my wife back in Maryland, static-free, using a friend’s Chinese cellphone. A few hours later, I took off from Hong Kong’s ultramodern airport after riding out there from downtown on a sleek high-speed train — with wireless connectivity that was so good I was able to surf the Web the whole way on my laptop.

Landing at Kennedy Airport from Hong Kong was, as I’ve argued before, like going from the Jetsons to the Flintstones. The ugly, low-ceilinged arrival hall was cramped, and using a luggage cart cost $3. (Couldn’t we at least supply foreign visitors with a free luggage cart, like other major airports in the world?) As I looked around at this dingy room, it reminded of somewhere I had been before. Then I remembered: It was the luggage hall in the old Hong Kong Kai Tak Airport. It closed in 1998.

The next day I went to Penn Station, where the escalators down to the tracks are so narrow that they seem to have been designed before suitcases were invented. The disgusting track-side platforms apparently have not been cleaned since World War II. I took the Acela, America’s sorry excuse for a bullet train, from New York to Washington. Along the way, I tried to use my cellphone to conduct an interview and my conversation was interrupted by three dropped calls within one 15-minute span.

He happens to use HK as his reference, but it could equally be Tokyo.  Take Narita Airport – the most pristine, clean organized place you could imagine, despite the volume of traffic.  Throughout Tokyo the use of modern phones, smart cards, and integration of technologies with offline, (QR code) is so pervasive as to be the new normal.  The Jetsons/ Flinstones metaphor is exactly feeling that is produced.

Canada is not excused from this comparison either.  We have highway ramps falling apart, people killed in parking lots when concrete falls on them, sinkholes appearing in roads as 100 year old drains collapse, and a general lack of infrastructure renewal for 40 years. And Canada gets busier, with a 38% increase in population over the last 30 years, a 5 or 6 fold increase in number of vehicles on the road, yet the roads are not consequently different over that period – the same streets carrying 500% more volume.  Another example is that we still see gigantic buses and trucks that were designed for open empty highways.  Why is it that Europe and Japan have trucks, buses, cars and vans that are designed for narrow streets?  My point here is not to further bash the enormously mistaken auto-bailout again – the point is that there is no plan.  North America in particular is wandering aimlessly while the rest of the world is trying to adapt.

This view is exemplified by the non-plussed & speechless Loic le Meur when confronted by Mike Arrington and others on the stage at the recent Le Web in Paris.  This 20 minute video  debates the approach to business and conferences in Europe vs America.  Words to consider while watching – arrogance vs pragmatism.

Relevance to Bankwatch:

The word innovation is in danger of overuse, and people are beginning to become immune to that word.

Innovation | wikipedia

The term innovation means a new way of doing something. It may refer to incremental, radical, and revolutionary changes in thinking, products, processes, or organizations.

Wikipedia goes on to point out that this is defferent than invention of something new.  Innovation is just doing similar things better and smarter – innovation is actually easier than invention.

That door remains open.  Banks are not going to solve the problems listed by Friedman above, but they certainly do not have to be part of the problem, and they are large enough to influence peoples thinking and to help create the desire to break out of the logjam.  There is an innate desire for renewal, as reflected in the majority of people who are against the auto-bailout for example.  I suspect a majority are against the bank bailout too, following the AP revelation that Banks will not account for how they used that public money.

There are enormous opportunities for banks to develop new efficiencies in product and service delivery that are reflective of the new generations’ expectations.  The argument of building for the lowest common denominator, “the little old lady customer” syndrome, no longer works.  There are some key principles that need to be applied in new designs, and by using those to drive design will reap rewards.

For 2009 budgets will be even more constrained than ever.  This is the ideal time to consider different as opposed to less.  Usually at this time of year bloggers make predictions.  Not this year.  Instead how can we better?

Here is my draft of three principles to re-invent the annual development plan process.  With thought and innovation there are opportunities here to move the agenda ahead constructively.

• Design principle #1:  make Internet* the centre of your design
• Design principle #2: make self service the over-riding choice – all else is secondary
• Design principle #3:  customers are smarter, faster and more knowledgeable than you (purchase patterns do not follow the traditional “funnel”)

* Internet = NOT (just) online banking – Internet is where your customers exist online.

As always thoughts welcome.  Note the Comments link is at the top of each post now in the new design.

Jmes at infoonthego has written a script that brings the user friendly merchant he has in his wesabe account and pulled them into his Lloyds Bank statement. He replaces the generic names in Lloyds statement with his own understood names.

Mashing up your Bank and Wesabe

If I’ve gone to the effort of giving friendly names to merchants in Wesabe, can’t I get the benefits elsewhere as well? Wesabe have provided an API for well over a year now and although I’ve had a dabble with it now and again I’ve found that until there’s a means of updating information (aside from the undocumented statement upload function) I haven’t really had that much use for it, until now.

…

So there you have it, an augmented statement with extra details and no-one else had to do anything to achieve it. It’s by no means an ideal solution and using scripts like this is something to do with your eyes very much open but the fact that the functionality ‘appears’ within a few seconds of you opening your statement is quite neat and can make the statement a little more personal in appearance. One way to take this forwards might be to add the functionality to perform a statement upload into Wesabe directly from your bank’s site.

This has enormous implications on so many levels. Banks cannot possibly keep up with customers needs and requirements even with unlimited investment money. The degree of customisation needed to satisfy each of millions of customers is by definition, impossible. Banks have to design online banking for the average customer, and that will please few and annoy most.

Clearly this implementation is one-off and requires some expertise. So the innovation challenge to banks is simple – how can they adapt to permit use of open API’s from someone such as Wesabe to bring personalised customisation to their online banking.

Relevance to Bankwatch:

Banks have loyalty issues – this is well documented. Ron argues convincingly about the need for customer engagement. They also have decent approval ratings on their online banking, that is generally a result of customers becoming accustomed to online banking. But online banking is treated by banks as somehow disassociated from customer experience, and their is little to engage customers – its a place they go to transact and leave.

The example of use of Wesabe tools inside online banking introduces a dramatic new element of customer experience that can never be achieved by the bank in implementing its own functions. If a customer has taken the time to orchestrate something like Wesabe, and the Bank has taken the time to integrate it – that offers some possibility for engagement.

This blog, StumblingandMumbling is worth the subscription. It is insightful, and contrary enough to provoke thinking. It also happens to articulate things that I cannot help thinking about.

Recession or Inflation targeting

2. The cost of recession isn’t just unemployment hitting a few hundred thousand, but the fear of unemployment hitting millions.

But this fear exists even in normal times, because the job destruction rate is so high. The 25,000 jobs that’ll be lost when Woolies closes represents just half of one average week of job losses between 1997 and 2005.

And what recession?:

The other day, I tried to do some Christmas shopping. I went into six shops looking for a Wii fit. All were out of stock. When I get home, I get a Barclaycard statement telling me my credit limit has been raised.

What’s more, the welfare benefits of lower inflation – savings on shoe leather costs and on tax distortions – don’t stop at zero inflation. Friedman, remember, thought the optimal inflation rate was negative.

The facts are that few of us understand all this. Its all to easy to insist on bailout packages and economic stimulus. Times of change make everything very personal.

Some thoughts:

We are in a time of industrial revolution. Many businesses that have prospered through the last 50 years of relative boom times, did so because consumer demand exceeded their need to innovate. Where are the cars that do 150 miles per gallon.Where are the payment systems that seamlessly shift money easily simply and cheaply to merchants, people or internationally. Where are the mobile devices that work on primarily data plans with voice as an extra.

Innovation has come erratically and in small localised pieces. Innovation has resisted peoples requests, preferring to intercept those requests with scripted call centre employees. Yet companies have no idea, institutionally, what is in the content of those conversations.

But things are changing, and that is where the industrial revolution is taking place. Internet has brought together movements in conversations, and the peoples requests are being spoken, heard, and gathering strength.

Here are three industries [auto, banking, telco] that have challenges – what will they look like in 25 years. Do they need a bailout, or temporary money to keep them in a holding pattern while industry disruptors give people what they want.

Thoughts welcome.

Loanio suspends operations

Prosper in violation of SEC; Loanio to halt operations

I would take a different view [disclaimer;  I am active with CommunityLend, a social lending company in Canada].

Social Lending / P2P lending is a disruptive influence to traditional financial services and that is a good thing.  Disruption infrequently comes from within – existing participants within an industry have little incentive or desire to promote radical change.  Such change can only introduce new risk and different results that will cannibalize their current state, and shareholders will no likely understand that either.  The better approach is to make tweaks to the status quo.

“You never change things by fighting the existing reality.  To change something, build a new model that makes the existing model obsolete” – Buckminster Fuller.

Having said that, there is little doubt that the world of financial services requires innovation, and people are expecting that.  People (consumers)also have a certain tolerance for risk associated with their financial services.  It is their money, and while risk tolerances vary amongst people, there is a range of high and low risk acceptance that accommodates all rational people. 

Social lending was produced by the confluence of technology capability, and peoples readiness to adapt and adopt new tools.  Within the industry there has been constant debate about the degree of regulation, and even the nature of regulation that ought to apply, or not. 

If we return to the disruption theme, would a rational person expect industry disruption to include elimination of regulation that is designed to protect people and ensure the appropriate risks are identified and understood?

Web 2.0 meets reality:

Web 2.0 has had something of a free ride to date, and that has been discussed at length.  All the talk of business models and gathering eyeballs for advertising does not change the simple reality that advertising is not a business model.  A business model requires people to buy things from people who sell things. [apologies to Austin Hill who said something similar at StartupEmpire recently].

Web 2.0 tools offer ways to fundamentally shift the way things work to a different model, and financial services is a definite candidate.  There is much that could be improved about financial services, where innovation is not often seen.  Many of the other uses of Web 2.0 are informational,  recreational, or small transaction based. 

The creation of a new system for lending that empowers borrowers is a welcome thing.  The creation of a new system that offers new classes of investments is also a welcome thing.

If we did a survey of borrowers and investors, and asked them whether they would consider participating in a new service when there are no rules, fallbacks or protection of any description it is doubtful such a model would stand up to that test, and it is equally unlikely it would develop the scale or scope to be called industry disruption.

There are over 60 p2p lending companies in 18 countries around the world.  At present, to the best of my knowledge there is regulation in Australia, Canada, US and Holland.  The nature of the regulation in the first three are securities regimes.  Holland is slightly different.  As for other countries, the question has to be asked, as to whether regulators are merely waiting in the wings or have actively decided to stand back.

In any event, the course is clear for US and Canada, and while web purists will not like what they see, it is worthwhile to take a deep breath and consider the alternatives.  The degree of regulation is certainly something that can be debated, but not whether there ought to be regulation.  Disruption is a difficult thing, and does not always follow a linear path.  The key is that is continues to move forward, and as we look at LendingClub, this can and will happen.

The stage is being set for a strong and legitimate industry in Canada, and US around the concept of social lending.

UPDATE:  Techcrunch have a summary and some interesting comments.

Click through to msnbc for their research and analysis.

Second Life bank crash foretold financial crisis | msnbc

The end came when panicked investors began withdrawing their virtual money, known as Linden dollars in the game and exchangeable for U.S. dollars at a rate of roughly 250 Linden dollars to one U.S. dollar. Ginko did not have enough reserves to pay up. When the bank finally announced it was finished, an equivalent of $750,000 in real-world U.S. dollars went up in smoke. The collapse not only wiped out time spent earning Linden dollars in the game, but also hit the wallets of players who had legally paid U.S. dollars to buy Linden dollars.

Text Mint to See if You’ve Been Naughty or Nice

Starting today, text BAL or BALANCE to MyMint (696-468) from any checkout line in America and we’ll send you the balances in all of the checking, savings and investment accounts you track in your Mint account.  Just think of it, no more embarrassing “your credit card has been declined” moments.

This typifies the disruptive forces at play and during these tough times, I would expect just as we saw following the dot.com bust, we will see more of these new services chipping away at functions that could have been implemented at a bank.  This will only serve to make the new services that much more appealing.

Check it out here.  What better way to learn and understand the Internet environment.

Online Banking Rating and Reviews

To my knowledge only Bank of America have dabbled in this kind of thing to date, and no bank in Canada.

The enterprise of the future in the financial markets industry | IBM

What will the financial markets enterprise of the future look like? To answer that question, IBM spoke with more than 1,000 CEOs from around the world. These conversations, together with our statistical and financial analyses, provide a unique perspective on the future of the enterprise. During this critical point in the market, five core traits of the enterprise of the future revealed through our study provide important implications for the financial markets industry—an opportunity, if not a mandate, to reevaluate business and operating models.

The enterprise of the future in the financial markets industry (188KB) – pdf

The central point is that this is no longer business as usual, and whether startups or old businesses, the traits mentioned are core to survival.

The five core traits of the Enterprise of the Future revealed in the IBM Global CEO study hold important  implications for the financial markets industry as it navigates one of the most financially devastating
periods in history

The five traits [only partial implications shown here - click through to IBM for full report]

1. Hungry for change

   Implications:  … having the right governance, culture and incentives will allow firms to manage change, not simply react to it.

2. Innovative beyond customer imagination
   Implications: … Moving slowly on this trend puts firms at risk of losing clients to innovators that are improving client collaboration and segmentation capabilities …
3. Globally integrated

   Implications:  To drive faster and bolder innovation, employees need the means to collaborate openly across organizational fiefdoms. And despite the industry’s bias toward proprietary intellectual capital and a do-it-yourself approach, market realities are making external collaboration even more crucial.

4. Disruptive by nature

   Implications:  Firms must also nurture a series of innovation programs that span multiple business
   model areas and include industry-changing plays. In this industry, perhaps more than most, technology will serve both as an enabler and an instigator of business model innovation.

5. Genuine, not just generous

   Implications: Their negative reaction to client and regulator demands for increased transparency and ethical behavior may be causing financial markets firms to underestimate a major financial opportunity. We believe industry leaders will find ways to grow their bottom lines while being a socially responsible role model. They’ll not only work to become more “green” and invest in social causes, but also eliminate incentives that encourage unethical behavior inside their own ranks.

Relevance to Bankwatch:

The most intriguing part for me about this paper is that none of these characteristics come natural to any financial institution.  There are a couple of exceptions for one or two of the points and while I accept that, I can think of no institution that has all five.  This particularly applies to big banks.  Any exceptions within individual traits would be in the Credit Union world.

All five traits require a deep look inside the culture of the organisation, and the ability to see yourself as others see you.