The Bankwatch

Tracking the consumer evolution of financial services

Posts Tagged ‘banks

American rhetoric turns protectionist

President Obama is beginning to take on the mantle of an embattled and potentially protectionist leader with this comment in Yokohama today.

My interest is less politics and more Banks. Such inward looking approaches will inevitably result in inward looking institutions within the US, especially those with government ownership, or essentially government protection.


Addressing business executives in Yokohama, President Obama said the economic crisis had shown the limits of depending on US consumers and Asian exporters to drive growth.

Written by Colin Henderson

November 13, 2010 at 15:42

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Global Governance – Canadian perspective – Paul Martin

I am live blogging from the Friedrich Ebert Stiftung/ Munk Centre/ University of Toronto conference on Global Economic Governance.  The keynote speaker is Paul Martin (PM) who is up next.  Introductions first from Werner Puschra, Director, Friedrich Ebert Foundation, New York Office and John Kirton, Professor, International Relations Programme, G20 Research Group, Munk School of Global Affairs, University of Toronto.  Basically Martin a former PM of Canada is being introduced as the ‘father’ of G20.


Notes on Martin begin here:

Global governance requires a global steering committee covering these issues.

  1. breadth of issues
  2. priority
  3. results
  4. ability to reach out to those not represented in the G20

Nations will negotiate in their own self interest.  More and more each country’s self interest is reflected in global interests. Members are members because of power and position, but their responsibilities go much further.

Three examples.

  • poverty
  • banking
  • climate change

Food shortages are and imbalances in the food chain, especially Africa.  Governments are downing tools on Africa and awaiting the next banking crisis.  Speaking at length about Africa, mentioning Burquino Faso and other countries where the crisis is desperate.

Climate Change:  The next meeting is November in Mexico.  Mistake to not have a G20 parallel meeting of leaders on climate change.  Some movement earlier this year in Europe but will G20 pick it up.

Banking:  todays financial crisis shows just how unprepared the economies of the global economy are.  Too many countries are having to confront devastated balance sheets (Greece).  Notes the UK Government budget this week.  If there is another banking crisis and it doesn’t look good in Europe then the impacts will be enormous.  Need a protocol to unwind banks.  If a bank is too big to fail, it is too big.

Principles of banking.  Strengthen national regulation but that is not enough.  Suggests the FASB is the best governance against systemic risk.  Standards must be mandatory.  Peer review ass proposed is inadequate.  Much talk of ‘future banking crisis’.  If bankers are expecting to act globally, then the referee must be global.

Bankers, shareholders must understand when they cannot take excessive risks and accept the profits with Government support in bad times is no longer involved.

G20 is no longer a club of self interest.

Rise above self interest and nationalism.  The current definition of sovereignty is outdated (1648).  G20 must be talking about what is required to protect sovereignty in the context of todays global environment.  In the last few months the last vestiges of old style sovereignty have been stripped away. (Greece, Portugal)

What the American and European governments have to come to terms with is that when the Chinese, Indian and Brazilian economies stumble as they grow there will be no bailout package large enough.  The host country can significantly influence the G20 agenda.

Don Newman, CBC is up with Madelaine Drohan, Canadian correspondent The Economist to facilitate questions

Bank Tax.  peripheral issue.  PM …No government should pass a law it cannot enforce.  The largest and fastest growing banks are state owned (China, Brazil)

Madelaine:  some do not like the G20.  How will it relate to the UN.  PM:  membership was picked by Martin and Larry Summers (?).  To reopen the membership would open a pandora’s box.  However it is important to reach out to all countries.  Having said that it cannot rival the UN.  G20 is a deliberate group that makes recommendations.  At the time of UN reform the commission recommended a group of 20 nations provide some sense of direction to the debates.   The numbers in the UN work against ability to make a decision.

Audience:  view on fiscal exit strategies. PM … (Andrew – known by Martin).  If you have slow economic growth and you cut further you will slow growth.  ‘The government is not going to be in my pockets forever so I will have more confidence’.  If the UK economy withstands yesterday budget it will be in good shape in 2 years.  There is no cookie cutter approach.  Martin is a believer in draconian budgets.  He supports the UK approach.

Audience:  question on Canada’s role in global peace.  PM.. Canada’s voice should be heard.  Canada can take a leadership role in certain areas and one key is Africa.

Audience:  Food security:  would fair trade be a better model.  Africa’s inability to penetrate foreign markets but the major issue is Africa’s inability to feed itself.  Africa should be a breadbasket.

Audience:  Is it time for a financial transactions tax.  PM …  this is separate from a bank tax.  Answer is fudgy .. generally thinks its worthy of consideration.

Audience:  are you considering re-entering federal politics.  PM …  No 🙂

Audience:  global bank regulation and standards for liquidity and capital.  PM … extend review to all members of UN or IMF.  A model could be the World Trade Organisation (WTO).  Usage of peer reviews and recommendation for approval by the Financial Stability Board (FSB).  Certain degree of enforcement by global banks seeking common standards across countries.  (Speaking to the quality of Canadian banks) “I was the guy who toughened up the Canadian bank rules and I got little push back from the Canadian banks”.  PM Anecdote:  Martin as PM wanted to visit head of OSFI (Canadian bank regulator) but David Dodge Governor of Bank of Canada told him that was impossible unless accompanied by the Governor of the Bank of Canada.

Madelaine;  on influence of the G20 host.  PM .. yes the host country could scuttle G20 outcomes if they disagree because of their control over the agenda.

Thats it.  Back later for keynote from Jomo Kwame Sundaram, Assistant Secretary-General for Economic Development, Department of Economic and Social Affairs, United Nations, facilitated by Chrystia Freeland, Global Editor at Large, Thompson Reuters (previously US editor Financial Times)

Written by Colin Henderson

June 23, 2010 at 09:27

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The true meaning of innovation in financial services lies in the plumbing, not UI

This piece on internet and evolution of financial services has the best quote I have seen for some time.

“these companies have merely built nice UI’s to Wall Street”

How To Disrupt Wall Street | The Business Insider

As I see it, these companies have merely built nice UI’s to Wall Street: Mint connects to your banks and Square to Visa and Mastercard and the bank that issued the credit card. If people at farmers’ markets use credit cards instead of cash, that means more money for Wall Street, not less.

Brilliant. I take no issue with the likes of Mint, and Square which are nice new innovations. which may well result in big changes later. However they are hardly game changing today. Game changing would mean that in 20 years time we might see future headlines such as:

  • Headlines – 2030
  • bank branches are no longer ….
  • banks have largely been replaced by ….
  • customers obtain financial services today from ….
  • Hedge funds have replaced …..
  • A new type of investment fund has …..

In order for such headlines to appear new sets of new companies will be needed, but more importantly companies that are based on dramatic shifts and simplicity in how money moves around. Money moves today amongst people and banks in a certain way today. This is the plumbing of banking. Payments networks, clearing systems and ATM networks are how money moves around. Mint for example does nothing to change that. In fact arguably Mint makes banks stronger by providing new reasons to stay with the current bank because the functionality Mint offers is based on access to existing plumbing.

The financial systems that comprise the plumbing and the operators who sit over the plumbing such as Banks, aggregators (eg Yodlee, Cashedge), Card companies (eg Visa, MasterCard), all serve to actually increase the complexity and also the probably, the cost of moving money around. More players means more competition, and it also means more aggregate costs in the system. For consumers they must beware new sets of fees which in total increase the overall costs of their financial services.

Let us not forget that one of the causes of the financial crisis of 2008 was the lack of transparency embedded in the financial products that served the securitization markets. Those markets remain, and the methodologies have yet to be re-invented. Government regulation will not fix that problem.

For me true innovation will only occur when plumbing changes. Despite the recession the world is awash in cash, seeking better returns, yet the ‘system’ generates very very low real returns on cash investments when compared to the interest rates which are paid by people on loans, credit cards and to a lessor extent mortgages. The interest rate differential between that paid, and that earned is being eaten up by more and more players. This has resulted in a shift to more and more fees because the interest spreads just don’t offer enough return to fund the ‘system’. This is a snowball effect that can never be good for people. Forget about bank bonuses. Those are asymptomatic of an inefficient system that is driven by driving people harder and paying them with large bonuses to make an inefficient system work by creating ways to hide the inefficiency – lipstick on a pig. Bonuses are just one element of cost in an inefficient system.

Thus true innovation can only occur when we see elements of plumbing removed, costs removed, and money able to move between people with less steps and costs thus eliminated. Included in the plumbing are banks and their systems, payment networks and their systems, card providers and their systems, and unfortunately this includes the new UI providers referred to in the article above.

When we see players changing plumbing such that existing systems are bypassed, and made no longer relevant to a transaction, we will have innovation. When that happens players will change and eventually be eliminated, and those headlines may begin to appear.

Written by Colin Henderson

January 23, 2010 at 20:18

Bank tax, bonuses and unintended consequences

I was a little surprised to see the UK conservatives support a global bank tax. In any event the amount of the bonus at JP Morgan Chase caught my attention, so I took a look at their capital base. With tier 1 capital of $133 bn, the bonuses represent a significant 7% of capital.

Ironically, the international tax will produce the unintended consequence of reducing capital even more., within the limitations of Basle. It is hard to see how a tax would improve governance and capital retention.

Osborne to push for global bank levy

George Osborne, shadow chancellor, said that it was “unacceptable” for banks to be paying large cash bonuses when they should be defending themselves against future disaster. On Friday, JPMorgan Chase, the US bank, kicked off the latest bank reporting season by announcing that it would pay $9.3bn (£5.7bn) in bonuses this year.

"Anders Borg, Swedish finance minister, told the FT that the Americans “have taken a lot of interest” in his country’s stability levy, suggesting some international convergence on the need to insure against the risky behaviour of banks.

Written by Colin Henderson

January 16, 2010 at 03:13

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Big banks might move to Hong Kong | FT

I was listening to all the pundits making predictions for 2010 over the weekend and one struck me in particular. It was Chrystia Friedland US Managing Director of Financial Times on Fareed Zakaria GPS, and she predicted big banks moving their headquarters to Hong Kong, in response to regulation and taxes. It was a one liner comment, with no follow through, but there is no reason for an investment bank which can operate virtually not o optimise its HQ location. Interesting. One more point for the rise of emerging economies.

Written by Colin Henderson

January 4, 2010 at 08:48

Mervyn King calls for banks’ break up per “The Great Unwinding” post in Feb

It is with some relish I see Mervyn King agreeing with me from last February.

King calls for break-up of banks | FT – Oct 2009

Mervyn King, governor of the Bank of England, called on Tuesday night for banks to be split into separate utility companies and risky ventures, saying it was “a delusion” to think tougher regulation would prevent future financial crises.

The Great Unwinding | part 1 of 3: 2009 – 2012 | The Bankwatch – Feb 2009

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

I expect my commission cheque is in the mail.

Full Text of King speech at in Edinburgh on 20 October 2009: speech406 pdf

Edit:  King provides attribution to John Kay here written Sept 09.

Written by Colin Henderson

October 20, 2009 at 14:57

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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

The Economist Special Report on the World Economy coins the term ‘Gandhian Banking’

Under the heading ‘Gandhian Banking’ The Economist reveals the extent of worldwide government injection into banks at $432 billion by this spring and guaranteed bank debts at $4.65 trillion. Of perhaps even greater significance is the implicit guarantee that now exists for all banks.

By this summer 33 American banks had repaid the capital the government had injected into them. The new era of state ownership seemed to be passing almost as quickly as it had arrived. But the state still has a large stake in the financial system beyond its explicit ownership of shares. It now owns the risk of any of the bigger institutions failing. Governments will do their utmost to avoid a repeat of anything like the bankruptcy of Lehman Brothers and the ensuing chaos.

The piece is part of the Special Report on the World Economy. The broad theme of the report is one that has taken the media some time to catch up with, and that is the meaning of recovery and getting back to normal, or as they call in the ‘new normal’ and ‘normalcy’.

Massive fiscal and monetary stimulus is cushioning the damage to households’ and banks’ balance-sheets, but the underlying problems remain. In America and other former bubble economies, household debts are worryingly high, and banks need to bolster their capital. That suggests consumer spending will be lower and the cost of capital higher than before the crunch. The world economy may see a few quarters of respectable growth, but it will not bounce back to where it would have been had the crisis never happened.

The reality of the new normal is that it does require significantly different planning and strategies and continuing with the pre 2008 strategies will not succeed. Again, and as noted yesterday (To Big to Fail and How Little the Concept is Misunderstood) it will be fascinating to see where the innovation in consumer banking products and channels comes from in banking.

Going back to my earlier ramblings on the future of banking lying in two camps:

  1. financial utilities
  2. innovators

… I remain even more convinced of this evolution. At the moment, the majority or all of TBTF’s (Too Big to Fail) are or will be in the financial utility category based on their fiddle while Rome is burning approach.

Written by Colin Henderson

October 5, 2009 at 22:16

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Too Big to Fail and How Little the Concept is Misunderstood

Sheila Blair Chair of the American FDIC (retail deposit guarantees) speaks clearly yet with words that are hardly reflective of US policy.

The first task is to scrap the “too big to fail” doctrine. To do this, we need to fix weaknesses in our regulatory system, and achieve global reform for effective resolution processes when large firms fail. With these steps, we can foster real market discipline and make international cooperation more successful.

Co-incidentally I watched the BBC World Debate earlier with an interesting group of contrasts (no video online yet)

BBC World Debate – Global Financial Crisis: Can we Afford the Future? (Opening plenary session of Program of Seminars) Speakers: Dominique Strauss-Kahn, Managing Director, IMF; Niall Ferguson, Professor, Harvard Business School; Christine Lagarde, Minister of Economic Affairs, Industry and Employment, France; Jim O’Neill, Chief Economist, Commodities and Strategy Research, Goldman Sachs; and Güler Sabancı, Chairperson,Sabancı Holding, Turkey

The study in contrast in the hour long debate was at its crispest when the facilitator asked Jim O’Neill no less than three or more times if Goldman was chastened by the whole government support, continued profits, and concern over billion dollar bonus thing, and he awkwardly and steadfastly bypassed the question. to which Niall leaped in to help out with the quote of the debate

Niall Ferguson: “you have got to be kidding … off course they are not chastened … They are absolutley gleeful! Their competitors have been knocked out [by government intervention and forced takeovers]”

It was a classic moment. The earlier context had been what lessons have been learned and does the answer lie in regulation. Ferguson had argued that regulation had created the problem through the creation of the Freddies which facilitated the mortgage crisis while operating as quasi government agencies with implicit 100% government guarantees that have since been exercised. Lets not forget that the Freddies accounted for $5.3 trillion in mortgages. That number is almost 50% of the US economy. This is consequential stuff, so to say more regulation is better is not appropriate. Better regulation at best might be acceptable, but not more.

Meantime back to the TBTF’s as Niall has named them. Just how strong are they after all the dust settles on the forced mergers to date. Here is a selection of the largest in US and UK. When looking at these numbers note that banks focus on capital base and on profits in public announcements. I choose to deliberately go back to basics and the debt to equity view – why? If it were not for the shortcomings in debt to equity, government intervention would not have been required by definition. Government assistance to banks is because they are unable to manage their debts – finance 101.

US $ billions

banks capital 2009

Relevance to Bankwatch:

Clearly I am innately pro-bank, otherwise I would not be bothering with this blog. What is really burning me more than anything though is the obvious refusal by the large banks, Canadian included, to openly recognise the role they play in the world economy, and the fundamental risk that is implicit in the pseudo state guarantee that has been in existence over the last 50 years, and that is now explicit. If I were a bank Chairman, what would keep me awake at night is the concern that the pro-state intervention meme that is exemplified in the benignly charming Christine Lagarde, will tomorrow reduce me to being a $50K per annum bureaucrat.

Going back to my earlier ramblings on the future of banking lying in two camps:

  1. financial utilities
  2. innovators

… I remain even more convinced of this evolution. At the moment, the majority or all of TBTF’s are or will be in the financial utility category based on their fiddle while Rome is burning approach.


Banks as exemplified in the impotent Jim O’Neill at the BBC debate are not displaying the desire and action that suggests they apprehend the severity of the issue. Notwithstanding even Niall indicating that bonuses are symptomatic and not causal, they do reflect strategy. What about dividends? What of a Bank that eliminates dividends for 5 years to boost capital by definition, by 50%? Consider the stock impact on the appreciation of risk that would reflect, especially when we consider the coming credit card problem that few speak of.

For those that disagree with this, consider the size of the liabilities above, and the relative size of the money set aside in the back pocket (equity). Consider Barclays – they have $20 bn in outstanding credit cards. If 12% is bad, that is $2.4 Bn. This equates to 5% of the capital base. Not much in percentage terms, but that is just credit cards. There is the commercial lending portfolio, the investment banking portfolio, all of which are driven off the same retail consumer desire to buy.

It is just not clear at all from Bank announcements in the investor relations sections that they have altered their behaviour one iota to reflect potential economic hiccups going forward, which would affect countries and not just themselves.

Written by Colin Henderson

October 4, 2009 at 16:55

A Sure Sign that we are at a Turning Point in Mobility and Use of Internet

I noticed an ad on CNN this afternoon, that really shows the gap that lies between old business and new business. The topic here is personal use of technology – how individual managers and executives use it. This reflects personal,and therefore institutional effectiveness. It reflects the difference in things happening over days, versus over months.

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 🙂

Written by Colin Henderson

October 4, 2009 at 15:06

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