Technology and markets may change, but the model for sound banking is still based on the same tenets as when our magazine was founded.
This magazine’s coverage of the Wall Street Crash in 1929 talked of the need to return to the “sound canons of banking management”. In this, our 90th anniversary edition, we carry a supplement on regulation in which restoring trust in banking – and bankers – is still a central theme. How to achieve it? Looking at those who already adhere to the “sound canons” is a good place to start.
In recent years, our pages have been dominated by coverage of bank failures, disastrous risk management and wanton market manipulation or product misselling. But our global perspective also leads to the conclusion that these failures of basic values are not universal. In fact, they are confined to a comparatively small number of very large banking markets.
Across much of the world, banks are the pioneers who ask borrowers to raise their standards of corporate governance or who adopt technological advances that offer benefits for the wider economy. And expanding the reach of finance can only be done by providing opportunities for the unbanked or underbanked, a subject that our feature on social impact investing addresses in this edition.
If there is nothing inherently wrong with banking as a profession, then how do we avoid the worst behaviour witnessed in recent years? Above all, by acknowledging that while banks like to pride themselves on hiring the best and the brightest, we are all subject to irrational decision-making in the wrong circumstances. All bankers are prone to follow the herd pursuing the latest hot opportunity, from the leverage-driven stock market boom of the 1920s, through the Latin American infrastructure splurge of the 1970s and the Asian tigers in the 1990s to the supposed wonders of subprime mortgage lending and securitisation in the 2000s.
Perhaps journalists are sometimes just as guilty of talking up the good times (and prophesying further doom in the bad times). The Banker has proven its longevity, and we try to take a long view to match that. One unchanging truth is the need for banks to know their clients and assess their borrowing capacity dispassionately – technological advances should be able to help with that. And here’s one long-term idea that crops up more than once in this edition: addressing the tax bias that favours debt over equity. Leverage is meat and drink to the banking sector; it needs to be consumed, but in moderation.
