Sunday, 14 October 2012

Carry On Banking

This BBC Panorama documentary essentially seeks to answer the question: 'have investment bankers and financial institutions learned any lessons from the meltdown or is it back to the old days?' I would say that it's back to the new days, and certainly this documentary shows the desperation to get back to business as usual - albeit with a few tweaks. Bankers in certain parts of the industry i.e. loan origination and structuring, derivative sales, risk management and treasury, and of course leadership at all levels, certainly deserve criticism for the way they acted or failed to act in the lead up to the crisis. But there is a role for finance in facilitating a strong real economy, it is probably a lot plainer and simpler than much of what presently goes on in finance, but finance i.e. borrowing and lending of surplus funds and provision of transaction services are a social/public good. So while financial institutions do need to do some soul searching, the onus is really on the regulators and politicians to help reshape the industry and the incentives. One key problem is that a lot of investment bankers are not actually bankers in the traditional sense, rather they are agents of profiteering - in the old days it was called merchant banking, and 'investment banks' were partnerships, and 'banks' for the most part just borrowed and lent money; maybe that was a better structure? What do you think? - add your comments below...

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