The Bankwatch

Tracking the consumer evolution of financial services

Bank retail operations have not recovered despite profits

In this piece at the NY Times, Krugman points out the obvious that despite profits, Banks’ retail operations have not recovered. The large profits we are hearing about are all centred in the Investment Banking units.

I would add that it will take more than a turnaround in consumer confidence and reduction in unemployment. It will also take time to work through the de-leveraging impacts of consumer desire to reduce debts and save more for future crises while this one is firmly in peoples minds. For everyone who is still working they know of someone who is not, and that memory takes time to erase.

The Banks Are Not Alright

But there’s an even bigger problem: while the wheeler-dealer side of the financial industry, a k a trading operations, is highly profitable again, the part of banking that really matters — lending, which fuels investment and job creation — is not. Key banks remain financially weak, and their weakness is hurting the economy as a whole.

Written by Colin Henderson

October 19, 2009 at 10:49

2 Responses

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  1. Some interesting choices of words on Krugman’s part.

    First off, he refers to the retail ops as “the part of banking that really matters”. Hmmm, interesting. Really matters to WHOM, Mr. K? To shareholders? I don’t think so.

    I think he’s implying “matters to the economy”, which he more or less says when he writes “their weakness is hurting the economy as a whole.” To which I would say: Oh really? Couldn’t it be the other way around — that the weak economy is hurting the retail banks?

    Anyway, I think it’s your comment, Colin, that’s spot on here: That it will take more than a turnaround in the economy to improve banks’ retail performance.

    Ron Shevlin

    October 19, 2009 at 12:38

  2. @Ron … thanks for stopping by – its been a while! Your observation on what matters is interesting. Banks used to have to survive without Investment Banking. Glass Steagall is looming!

    Colin Henderson

    October 19, 2009 at 22:50

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