Bankers are everyone’s favourite scapegoats these days. So in a spirit of camaraderie and contrarianism, I became one this autumn.
In truth all I did was accept a non-executive directorship at Metro Bank. Metro is a high-profile new retail concept imported from the US, aiming to provide better service than our incumbent high street banks. I accepted the role because I felt it would be an educational experience.
In one sense, the trade is very simple. As the founder, billionaire Vernon Hill, puts it: “We take deposits and make loans.” But from there it starts to get complicated. In particular, banking must now be about the most highly regulated industry known to man, except perhaps for nuclear power generation.
I understand the rationale for this administrative burden, but I’m not convinced it actually helps create more competition – which is what the sector desperately needs most. And I’m not sure it really provides great value to the consumer – for the cost of all that red tape is passed on to customers, one way or another, as it always is.
Despite the compliance overload, and some hiccups, Metro is proceeding with its ambitious plans in confident style. I hope in time it will help force the current oligopoly of British banks to improve their offering to the public and smaller businesses. Generally speaking, greater choice and competition in any market obliges established players to revitalise themselves or shut down. That is the essence of capitalism – and UK banking needs more of that right now.
The last time I worked in financial services in a serious way was in the 1980s. Then, I laboured away as a stockbroking analyst at Kleinwort Benson, a merchant bank that was eventually bought by Germans – and ultimately broken up. Unquestionably, the job taught me a lot but the bureaucracy and office politics were suffocating – and anyway, I wanted to be a full-time entrepreneur.
I don’t regret leaving the profession. Even if working in an institution with Other People’s Money is the easiest way to a risk-free fortune, it can’t compare to the satisfaction of building your own business. Nevertheless, in the past few decades many of the very brightest graduates have gravitated towards banks. This influx of high fliers probably accounts for the extraordinary growth of “innovations” like securitisation, derivatives and other speculative products that have all too often proved to be incendiary devices. Wall Street and the City have bought most of the brainpower, and they deliberately made everything complicated in order to extract profits. Ultimately their greed and overweening ambition proved their undoing, and contributed materially to the financial crisis and government bail-outs.
Many experts have said that investment and retail banking arms should be wholly separated, or at least ringfenced. This must be right. Wholesale banks should pay more for finance, and not punt with depositors’ funds – or indeed benefit from an implicit taxpayer guarantee. However, I am not convinced sharply higher capital ratios make sense at this point in the cycle. The implementation of Basel III capital adequacy and liquidity standards should be delayed. Many bank balance sheets are far too battered to hugely increase their reserves in a hurry, especially if they are to maintain their lending to industry – which is vital if business is to invest, and grow, and hire new workers.
Meanwhile, intelligence suggests that job applications have plummeted from the best students to work in the best paying banks. I suppose no one wants to be a social pariah at 21 – even for a big bag of cash. Let’s hope much of the talent redirect their energies towards starting their own enterprises, following in the footsteps of superstars like Steve Jobs or our own Mike Lynch of Autonomy.
I certainly do not want to see Britain lose its pre-eminence in financial services, but a measure of rebalancing seems appropriate. Meanwhile, customers still need overdrafts, mortgages, credit cards and somewhere to deposit their savings. Old-fashioned, high-touch banking is a solid business if executed well, and fulfils an essential need in any society. Regulators and anti-bank protesters please take note.
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