Banks must ask themselves difficult questions about their lack of preparation for the current global pandemic, so they won’t be caught on the back foot the next time round, writes Chris Skinner.

The coronavirus crisis has hit everyone suddenly – and hard. We originally thought it was a Chinese crisis, but it quickly escalated into a global one. It has shut down economies across the world and the global banking system has been asked to step in fast and address the crisis. Governments worldwide have asked banks to give out loans to large and small businesses, as well as dole out payments to individuals. How have the banks fared in doing this? In general, badly.

A bank is built on risk avoidance, prudence and strong screening of any borrowing. A sudden shock to the system has tested that model fundamentally and it has failed. This is why so few people and companies who need urgent financial assistance have received it.

More fundamentally, a bank is built upon physical foundations. This crisis has shuttered those foundations and it is clear that most banks do not have a back-up. As an example, one major financial institution in the UK that outsourced its call centres to India has ceased all customer contact. It has a technical issue online so you cannot access its internet services; it has no app, so there is no digital contact; and now it has no call centres, so you cannot talk to anyone. It has failed completely – and it is not the only one.

Papering over the cracks

Now, this is not a diatribe against banks and their weaknesses. We know there are many and that it is not a thing that banks are proud of. Banks have been trying to digitalise for years but find it difficult. And, to be fair, it is not easy.

However, this crisis is truly showing the cracks in traditional banks’ ailing infrastructure. While many workers and the media have moved to video conferencing and social media seamlessly, banks have no back-up for office closures, branch closures and the loss of physical workers. Working from home and working remotely was not planned for – and neither was a pandemic.

While, as I write this, it is true of large, traditional banks, what about the new banks? Interestingly, many digital banks have transitioned seamlessly from offline to online. They tested the issues of a pandemic in February and moved rapidly to gear up for the move from office to home. They were ready.

This is a moment in time that has been described by politicians as “unprecedented”. I disagree. This was precedented. We knew a pandemic would happen one day. The question was when, not if. This pandemic was forecast by books dating back over 50 years (Stephen King’s The Stand), as well as in films such as Outbreak (1995) and Contagion (2011). We knew this was coming.

Digital resilience

It is not as if we haven’t planned for years for the collapse of our systems: when our technology stops working, we’ve planned for that. It is called business continuity. But why didn’t we plan for the closure of our offices? Why didn’t we plan for our staff to be at home? Why didn’t we create a digital back-up of our physical structures?

Sure, it is easy to ask such questions in hindsight. I guess it is a bit like the UK government’s 2016 simulation of how the health service would cope when a pandemic occurred. The answer was: badly. The health service would fail. Was this addressed with a back-up plan? Nope. There were too many other things happening: Brexit, austerity, elections and more.

The same is true with banks. Even if most traditional banks had planned for a physical meltdown, would they have created a digital back-up? Maybe. But only if issues of losses, shareholder returns, share price, branch closures and more had not got in the way.

What this crisis has shown me, and many others, is that a digital structure to back up a bank’s physical structure has become more critical than ever. However, we must wait for this crisis to be over to create it.

Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.


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